BCZ 105 IAS 36 relies on an 'economic' criterion for the recognition of an impairment loss-an impairment loss is recognised whenever the recoverable amount of an asset is below its carrying amount. This criterion was already used in many International Accounting Standards before IAS 36, such as IAS 9 Research and Development Costs, IAS 22 Business Combinations, and IAS 16 Property, Plant and Equipment.
BCZ 106 IASC considered that an 'economic' criterion is the best criterion to give information which is useful to users in assessing future cash flows to be generated by the enterprise as a whole. In estimating the time value of money and the risks specific to an asset in determining whether the asset is impaired, factors, such as the probability or permanence of the impairment loss, are subsumed in the measurement.
BCZ 107 The majority of commentators on E55 supported IASC's view that an impairment loss should be recognised based on an 'economic' criterion.
Revalued assets: recognition in the income statement versus directly in equity
BCZ 108 IAS 36 requires that an impairment loss on a revalued asset should be recognised as an expense in the income statement immediately, except that it should be recognised directly in equity to the extent that it reverses a previous revaluation on the same asset.
BCZ 109 Some argue that, when there is a clear reduction in the service potential (for example, physical damage) of a revalued asset, the impairment loss should be recognised in the income statement.

BCZ 110 Others argue that an impairment loss should always be recognised as an expense in the income statement. The logic of this argument is that an impairment loss arises only where there is a reduction in the estimated future cash flows that form part of the business's operating activities. Indeed, according to IAS 16, whether or not an asset is revalued, the depreciation charge is always recognised in the income statement. Supporters of this view question why the treatment of an impairment loss on a revalued asset should be different to depreciation.
BCZ 111 IASC believed that it would be difficult to identify whether an impairment loss is a downward revaluation or a reduction in service potential. Therefore, IASC decided to retain the treatment used in IAS 16 and to treat an impairment loss of a revalued asset as a revaluation decrease (and similarly, a reversal of an impairment loss as a subsequent revaluation increase).
BCZ 112 For a revalued asset, the distinction between an 'impairment loss' ('reversal of an impairment loss') and another 'revaluation decrease' ('revaluation increase') is important for disclosure purposes. If an impairment loss that is material to the enterprise as a whole has been recognised or reversed, more information on how this impairment loss is measured is required by IAS 36 than for the recognition of a revaluation in accordance with IAS 16.

Cash-generating units
(paragraphs 66-73)
BCZ 113 Some support the principle of determining recoverable amount on an individual asset basis only. This view was expressed by a few commentators on E55. They argued that:
(a) it would be difficult to identify cash-generating units at a level other than the business as a whole and, therefore, impairment losses would never be recognised for individual assets; and
(b) it should be possible to recognise an impairment loss, regardless of whether an asset generates cash inflows that are independent from those of other assets or groups of assets. Commentators quoted examples of assets that have become under-utilised or obsolete but that are still in use.
BCZ 114 IASC acknowledged that identifying the lowest level of independent cash inflows for a group of assets would involve judgement. However, IASC believed that the concept of cash-generating units is a matter of fact: assets work together to generate cash flows.
BCZ 115 In response to requests from commentators on E55, IAS 36 includes additional guidance and examples for identifying cash-generating units and for determining the carrying amount of cash-generating units. IAS 36 emphasises that cash-generating units should be identified for the lowest level of aggregation of assets possible.

Internal transfer pricing (paragraph 70)
BC 116 The previous version of IAS 36 required that if an active market exists for the output produced by an asset or a group of assets:
(a) that asset or group of assets should be identified as a cashgenerating unit, even if some or all of the output is used internally; and
(b) management's best estimate of the future market prices for the output should be used in estimating:
(i) the future cash inflows that relate to the internal use of the output when determining the value in use of this cash-generating unit; and
(ii) the future cash outflows that relate to the internal use of the output when determining the value in use of the entity's other cash-generating units.
BC 117 The requirement in (a) above has been carried forward in the revised Standard. However, some respondents to the Exposure Draft asked for additional guidance to clarify the role of internal transfer pricing versus prices in an arm's length transaction when developing cash flow forecasts. The Board decided to address this issue by amending the requirement in (b) above to deal more broadly with cash-generating units whose cash flows are affected by internal transfer pricing, rather than just cash-generating units whose internally consumed output could be sold on an active market.

BC 118 Therefore, the Standard clarifies that if the cash inflows generated by any asset or cash-generating unit are affected by internal transfer pricing, an entity should use management's best estimate of future prices that could be achieved in arm's length transactions in estimating:
(a) the future cash inflows used to determine the asset's or cash-generating unit's value in use; and
(b) the future cash outflows used to determine the value in use of other assets or cash-generating units affected by the internal transfer pricing.
Testing indefinite-lived intangibles for impairment
BC 119 As part of the first phase of its Business Combinations project, the Board concluded that:
(a) an intangible asset should be regarded as having an indefinite useful life when, based on an analysis of all relevant factors (eg legal, regulatory, contractual, competitive and economic), there is no foreseeable limit on the period over which the asset is expected to generate net cash inflows for the entity; and
(b) an indefinite-lived intangible should not be amortised, but should be tested regularly for impairment.
An outline of the Board's deliberations on each of these issues is provided in the Basis for Conclusions on IAS 38 Intangible Assets.

BC 120 Having reached these conclusions, the Board then considered the form that the impairment test for indefinite-lived intangibles should take. The Board concluded that:
(a) an indefinite-lived intangible should be tested for impairment annually, or more frequently if there is any indication that it may be impaired; and
(b) the recoverable amounts of such assets should be measured, and impairment losses (and reversals of impairment losses) in respect of those assets should be accounted for, in accordance with the requirements in IAS 36 for assets other than goodwill.
Paragraphs BC121-BC126 outline the Board's deliberations in reaching its conclusion about the frequency and timing of impairment testing indefinite-lived intangibles. Paragraphs BC129 and BC130 outline the Board's deliberations in reaching its conclusions about measuring the recoverable amount of such assets and accounting for impairment losses and reversals of impairment losses.

Frequency and timing of impairment testing
(paragraphs 9 and 10(a))
BC 121 In developing the Exposure Draft, the Board observed that requiring assets to be remeasured when they are impaired is a valuation concept rather than one of cost allocation. This concept, which some have termed 'the recoverable cost concept', focuses on the benefits to be derived from the asset in the future, rather than on the process by which the cost or other carrying amount of the asset should be allocated to particular accounting periods. Therefore, the purpose of an impairment test is to assess whether the carrying amount of an asset will be recovered through use or sale of the asset. Nevertheless, allocating the depreciable amount of an asset with a limited useful life on a systematic basis over that life provides some assurance against the asset's carrying amount exceeding its recoverable amount. The Board acknowledged that non-amortisation of an intangible asset increases the reliance that must be placed on impairment reviews of that asset to ensure that its carrying amount does not exceed its recoverable amount.

BC 122 Accordingly, the Exposure Draft proposed that indefinite-lived intangibles should be tested for impairment at the end of each annual reporting period. The Board concluded, however, that testing such assets annually for impairment is not a substitute for management being aware of events occurring or circumstances changing between annual tests that indicate a possible impairment. Therefore, the Exposure Draft also proposed that an entity should be required to test such assets for impairment whenever there is an indication of possible impairment, and not wait until the next annual test.
BC 123 The respondents to the Exposure Draft generally supported the proposal to test indefinite-lived intangibles for impairment annually and whenever there is an indication of possible impairment. Those that disagreed argued that requiring an annual impairment test would be excessively burdensome, and recommended requiring an impairment test only when there is an indication that an indefinite-lived intangible might be impaired. After considering these comments the Board:
(a) reaffirmed its view that non-amortisation of an intangible asset increases the reliance that must be placed on impairment reviews of that asset to ensure that its carrying amount does not exceed its recoverable amount.
(b) concluded that IAS 36 should require indefinite-lived intangibles to be tested for impairment annually and whenever there is an indication of possible impairment.

BC 124 However, as noted in paragraph BC122, the Exposure Draft proposed that the annual impairment tests for indefinite-lived intangibles should be performed at the end of each annual period. Many respondents to the Exposure Draft disagreed that IAS 36 should mandate the timing of the annual impairment tests. They argued that:
(a) it would be inconsistent with the proposal (now a requirement) that the annual impairment test for a cash-generating unit to which goodwill has been allocated may be performed at any time during an annual period, provided the test is performed at the same time every year. There is no justification for providing less flexibility in the timing of the annual impairment test for indefinite-lived intangibles.
(b) if the impairment test for an indefinite-lived intangible is linked to the impairment test for goodwill (ie if the indefinitelived intangible is assessed for impairment at the same cash-generating unit level as goodwill, rather than individually or as part of a smaller cash-generating unit), the requirement to measure its recoverable amount at the end of the annual period could result in the cash-generating unit to which it (and the goodwill) belongs being tested for impairment at least twice each annual period, which is too burdensome. For example, assume a cash-generating unit contains goodwill and an indefinite-lived intangible, and that the indefinite-lived intangible is assessed for impairment at the same cash-generating unit level as goodwill. Assume also that the entity reports quarterly, has a December year-end, and decides to test goodwill for impairment at the end of the third quarter to coincide with the completion of its annual strategic planning/budgeting process. The proposal that the annual impairment test for an indefinite-lived intangible should be performed at the end of each annual period would mean that the entity would be required:
(i) to calculate at the end of each September the recoverable amount of the cash-generating unit, compare it with its carrying amount, and, if the carrying amount exceeds the recoverable amount, recognise an impairment loss for the unit by reducing the carrying amount of goodwill and allocating any remaining impairment loss to the other assets in the unit, including the indefinite-lived intangible.
(ii) to perform the same steps again each December to test the indefinite-lived intangible for impairment.
(iii) to perform the same steps again at any other time throughout the annual period if there is an indication that the cash-generating unit, the goodwill or the indefinite-lived intangible may be impaired.

BC 125 In considering these comments, the Board indicated a preference for requiring entities to perform the recoverable amount calculations for both goodwill and indefinite-lived intangibles at the end of the annual period. However, the Board acknowledged that, as outlined in paragraph BC124(b), impairment tests for indefinite-lived intangibles will sometimes be linked to impairment tests for goodwill, and that many entities would find it difficult to perform all those tests at the end of the annual period.
BC 126 Therefore, consistently with the annual impairment test for goodwill, the Standard permits the annual impairment test for an indefinitelived intangible to be performed at any time during an annual period, provided it is performed at the same time every year.
Carrying forward a recoverable amount calculation
(paragraph 24)
BC 127 The Standard permits the most recent detailed calculation of the recoverable amount of an indefinite-lived intangible to be carried forward from a preceding period for use in the current period's impairment test, provided all of the criteria in paragraph 24 of the Standard are met.