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HMRC internal manual

Corporate Intangibles Research and Development Manual

HM Revenue & Customs
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Intangible assets: notes on accounting practice: impairment review


An impairment review should be carried out at the end of the first full financial year following acquisition (CIRD30110) and if events or changes in circumstances indicate that the carrying amount of the fixed asset or goodwill may not be recoverable. Impairment occurs because something has happened either to the fixed assets,or to the economic environment in which they are used.

Examples of the sort of changes that might signify the need for an impairment review include:

  • the business starts making operating losses in the period in which the fixed asset or goodwill is involved,
  • the market value of the assets declines in the period (as shown for example by sale prices of similar assets),
  • there is evidence of obsolescence or physical damage to the asset,
  • a major new competitor enters the market,
  • there are changes in the statutory or regulatory environment in which the business operates.

The impairment review should compare the carrying amount of the intangible asset with its recoverable amount. The carrying amount is the value in the balance sheet, while the recoverable amount is the higher of net realisable value and value in use. If the net realisable value cannot be ascertained then the value in use is taken.

FRS11 gives details of the calculation methods, but if your concerns extend to this level of detail, then you should be seeking advice from a Revenue accountant. In general value in use would probably be based on anticipated cash flows including ultimate disposal value.

Calculation of value in use

The value in use of a fixed asset should be estimated individually where reasonably practicable. Where it is not reasonably practicable to identify cash flows arising from an individual fixed asset, value in use should be calculated at the level of income-generating units. The carrying amount of each income-generating unit containing the fixed asset or goodwill under review should be compared with the higher of the value in use and the net realisable value (if it can be measured reliably) of the unit.

The value in use of a fixed asset is the present value of the future cash flows obtainable as a result of the asset’s continued use, including those resulting from its ultimate disposal. In practice, it is not normally possible to estimate the value in use of an individual fixed asset, it is the utilisation of groups of assets and liabilities, together with their associated goodwill, that generates cash flows. Hence value in use will usually have to be estimated in total for groups of assets and liabilities. These groups are referred to as income-generating units.

CIRD30560 describes how impairment losses are recognised in the accounts and the circumstances in which they may be reversed.