Accounting Standards Board - Technical - Standards in Issue

Impairment of Fixed Assets and Goodwill

FRS 11

Issued: July 1998

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	FRS 11


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The objective of FRS 11 is to ensure that:

fixed assets and goodwill are recorded in the financial statements at no more than their recoverable amount;
any resulting impairment loss is measured an recognised on a consistent basis; and
sufficient information is disclosed in the financial statements to enable users to understand the impact of the impairment on the financial position and performance of the reporting entity.

FRS 11 sets out the principles and methodology for accounting for impairments of fixed assets and goodwill. It replaces the previous approach whereby diminutions in value were recognised only if they were regarded as permanent. Instead, the carrying amount of an asset is compared with its recoverable amount and, if the carrying amount is higher, the asset is written down.

Recoverable amount is defined as the higher of the amount that could be obtained by selling the asset (net realisable value) and the amount that could be obtained through using the asset (value in use). Value in use is calculated by forecasting the cash flows that the asset is expected to generate and discounting them to their present value. Where individual assets do not generate independent cash flows, a group of assets (an income-generating unit) is tested for impairment.

Impairment tests are only required when there has been some indication that an impairment has occurred.

The development of FRS 11 shadowed the development of the international standard on the same subject (IAS 36).

FRS 11 is effective for accounting periods ending on or after 23 December 1998.

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