Impairment of assets

An asset is said to be impaired if its carrying value is greater than its recoverable amount. Recoverable amount in turn is the higher of the asset’s [fair value (IFRS 13) less cost to sell] and its value in use to the asset holder.

Impairment can be caused by both internal and external factors.
Internal – typically, damage to the asset
Externally – economic, legal factors affecting the asset market, technological advancement, eg. new superior model.

Cash generating uint – (CGU) is the smallest group of assets (this may include goodwill) that generates measurable cashflow independently of other assets. Typically, a branch shop of a chain.

Allocation rules:
First – allocate to impaired asset (eg damaged machine) to the extent that its carrying value remain the higher of recoverable amount and zero.
Second – allocate to goodwill to the full extent of goodwill value if required.
Third – if there is any impairment left over, allocate to other assets in proportion to their carrying value.

Hope that helps.