Review of International Accounting Standard 36(impairment of assets) in relation to property, plant and equipment

  • Sunday Adebayo Alayemi The Federal Polytechnic, Offa
Keywords: secret reserve, historical cost, impairment, recoverable amount, value in use, depreciation, cash generating unit


This paper addressed the issue of creation of secret reserve as a result of provision for impairment vis-a-vis recognition of item of Property, Plant and Equipment (PPE) in the financial statements. The main objective of this paper is to develop theory that impairment of assets as provided in IAS 36 would distort information presented in the financial statement. According to postulate of accounting, historical cost is the appropriate basis for initial accounting recognition of all assets acquisition and the cost value should be retained throughout the accounting process. To match the cost of using the assets to the income derived in an accounting year, provision is made for depreciation to account for the usage of the asset. Before the promulgation of IAS 36, fixed assets (non-current assets) net book value is the amount at which assets are recognized after deducting provision for depreciation from the cost of assets. However, upon promulgation of IAS 36, assets are recognized at carrying amount which is historical cost of the asset minus accumulated depreciation and accumulated impairment losses thereon. The complication and complexity involved in the determination of impairment such as identification of the assets that may be impaired, calculation of recoverable amount, value in use and determination of a cash generating unit have made it to be subjective and may not allow for fair representation of the information presented in the financial statement contrary to the provision of IAS 1


International Accounting Standard 1 (1997). Presentation of financial statement. Issued by International Accounting Standards committee.

International Accounting Standard 16 (1993). Property, Plant and Equipment. Issued by the International Accounting Standards Committee.

International Accounting Standards 36 (1998). Impairment of Assets. Issued by the International Accounting Standards Committee.

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