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HMRC internal manual

Corporate Intangibles Research and Development Manual

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

Recognition

The impairment review should comprise a comparison of the carrying amount of the fixed asset or goodwill with its recoverable amount (the higher of net realisable value and value in use - CIRD30555). If the carrying amount exceeds the recoverable amount the fixed asset or goodwill is impaired and should be written down. The impairment loss should be recognised in the profit or loss account unless it arises on a previously revalued fixed asset.

An impairment loss on a previously revalued fixed asset should be recognised in the profit and loss account if it is caused by a clear consumption of economic benefits. Other impairments of revalued fixed assets should be recognised in the statement of total recognised gains and losses until the carrying amount of the asset reaches its depreciated historical cost and thereafter in the profit and loss account.

The circumstances in which impairment losses may be reversed are described below.

Conditions for reversing an impairment loss

The reversal of an impairment loss on intangible assets and goodwill should be recognised in the current period if, and only if:

  1. an external event caused the recognition of the impairment loss in previous periods, and subsequent external events clearly and demonstrably reverse the effects of that event in a way that was not foreseen in the original impairment calculations; or
  2. the impairment loss arose on an intangible asset with a readily ascertainable market value and the net realisable value based on that market value has increased to above the intangible asset’s impaired carrying amount.

The reason why it is not permitted to recognise reversals in impairment losses in other circumstances is that these will generally be as a result of internally generated goodwill, which a company is not allowed to capitalise.

The reversal of the impairment loss should be recognised to the extent that it increases the carrying amount of the goodwill or intangible asset up to the amount that it would have been had the original impairment not occurred.

The recognition of an increase in the recoverable amount of an intangible asset, above the amount that its carrying amount would have been had the original impairment not occurred, is regarded as a revaluation, see CIRD30580.