SFRS(I) 1-36 prescribes the procedures an entity applies to ensure that its assets are carried at no more than their recoverable amount. An asset is impaired when its carrying amount exceeds the amount that can be recovered through its use or sale; in that case an impairment loss is recognised. It is the Singapore equivalent of IAS 36 under IFRS, and is in substance IAS 36 as applied in Singapore.
Objective and scope
The objective is to prescribe the procedures that an entity applies to ensure its assets are carried at no more than their recoverable amount, and to prescribe when to recognise or reverse an impairment loss. The standard applies to a broad range of assets but excludes those with their own impairment or valuation rules — for example, inventories (SFRS(I) 1-2), contract assets (SFRS(I) 15), deferred tax assets (SFRS(I) 1-12), financial assets within SFRS(I) 9, and investment property at fair value (SFRS(I) 1-40).
Identifying a possible impairment
At the end of each reporting period, an entity assesses whether there is any indication that an asset may be impaired; if so, it estimates the recoverable amount. It considers external sources (a significant decline in market value; adverse changes in the technological, market, economic, or legal environment; increases in market interest rates) and internal sources (obsolescence or physical damage; adverse changes in use; internal evidence of worse-than-expected performance).
Irrespective of any indication, an entity must test the following for impairment at least annually: an intangible asset with an indefinite useful life; an intangible asset not yet available for use; and goodwill acquired in a business combination.
Recoverable amount
The recoverable amount is the higher of fair value less costs of disposal and value in use. Fair value less costs of disposal is the fair value (under SFRS(I) 13) less the incremental costs of disposal. Value in use is the present value of the future cash flows expected from the asset or cash-generating unit, applying a pre-tax discount rate reflecting current market assessments of the time value of money and the risks specific to the asset.
Recognising an impairment loss and cash-generating units
If the recoverable amount is less than the carrying amount, the carrying amount is reduced to the recoverable amount and the reduction is an impairment loss, recognised immediately in profit or loss (unless the asset is carried at a revalued amount). Where the recoverable amount of an individual asset cannot be estimated, the entity uses the cash-generating unit (CGU) — the smallest identifiable group of assets that generates largely independent cash inflows. Goodwill is allocated to CGUs and tested annually; an impairment loss for a CGU reduces any goodwill first, then the other assets pro rata.
Reversal of impairment losses
For assets other than goodwill, a previously recognised impairment loss is reversed if the recoverable amount has increased due to a change in estimates — but not above the carrying amount that would have been determined (net of depreciation) had no impairment been recognised. An impairment loss for goodwill is never reversed.
A worked example
A Singapore company owns a machine carried at S$800,000. New technology makes its product less competitive (an external indication), so it estimates the recoverable amount:
| Measure | S$ |
|---|---|
| Carrying amount of machine | 800,000 |
| Fair value less costs of disposal | 500,000 |
| Value in use (present value of future cash flows) | 550,000 |
| Recoverable amount (higher of the two) | 550,000 |
| Impairment loss (800,000 − 550,000) | 250,000 to profit or loss |
The recoverable amount is the higher of fair value less costs of disposal (S$500,000) and value in use (S$550,000), so S$550,000. Since this is below the S$800,000 carrying amount, a S$250,000 impairment loss is recognised and the machine is written down to S$550,000. Separately, the company tests goodwill allocated to a CGU for impairment annually regardless of indications; any CGU impairment reduces the goodwill first. If conditions later improve, the machine's impairment could be reversed (up to its notional carrying amount), but goodwill impairment could never be reversed.
How SFRS(I) 1-36 relates to IFRS
SFRS(I) 1-36 is identical to IAS 36 under IFRS — the same core rule (carry assets at no more than recoverable amount), recoverable amount as the higher of value in use and fair value less costs of disposal, the use of cash-generating units, the mandatory annual test for goodwill and indefinite-life intangibles, and the ability to reverse impairment losses on assets other than goodwill. An entity familiar with IAS 36 will find SFRS(I) 1-36 to be the same standard.
Common pitfalls
Recurring issues include failing to assess for indications of impairment at each reporting date, or to perform the mandatory annual test for goodwill and indefinite-life intangibles; testing an individual asset in isolation when it does not generate independent cash flows (a CGU test is needed); using an inappropriate discount rate or over-optimistic cash flows in value in use; reversing goodwill impairment (never permitted); and omitting the goodwill/CGU disclosures.
Why this is cleaner on a unified system
Impairment testing requires reliable carrying amounts and the cash flow information needed to estimate value in use — far easier when the fixed asset register, the operational data driving cash flow projections, and the ledger sit in one connected system. When carrying amounts and the data behind recoverable-amount estimates come from a single source of truth, identifying indications of impairment, testing at the asset or CGU level (including the annual goodwill test), and recognising or reversing impairment losses is more reliable than reconciling asset records and projections held in separate tools.
This article is a detailed educational summary of SFRS(I) 1-36 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of SFRS(I) 1-36 as issued by the Singapore Accounting Standards Council before relying on it, and consult a qualified professional accountant for application to your specific circumstances.