Non-Compliance with Ind AS 36 | Failure to Reverse Impairment Loss in Financial Statements
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- Last Updated on 6 March, 2023
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A company has acquired a subsidiary by paying a higher purchase consideration than the proportionate net assets of the subsidiary company and the difference was recognised as goodwill on the business combination in the consolidated financial statements of the Company. The company accessed an impairment loss and charged against the associated goodwill in the consolidated financial statements and in standalone financial statements, provided against the carrying value of the investment considering a permanent decline in the value of underlying assets.
Years later on recovery of the impairment loss, the company construed that the carrying value of such investment is diminished permanently to the extent of diminution in the value of goodwill as the provisions of Ind AS do not specifically deal with the impairment in respect of investment in subsidiary in case of permanent decline.
The Expert Advisory Committee of ICAI has noted that if the Standard had intended to prohibit, partly or fully, the recognition of reversal of impairment on investment in the subsidiary, similar to the prohibition in case of goodwill, the Standard would have specifically mentioned the same. Accordingly, it can be concluded that the view of the company not to reverse the impairment loss against the carrying value of its investment in the subsidiary is not in line with the requirements of Ind AS 36.
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