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Impairment test

Corporate Advisory

What is an impairment test and what is it used for?

Impairment is the estimated loss in value of an asset that represents the difficulty of recovering, through use, sale or other form of disposal of the asset, its full carrying amount. An asset is impaired when its carrying amount exceeds its recoverable amount.

Impairment tests are useful since they reveal the need to change depreciation methods, useful life or residual value.

What are the signs of impairment?

These may derive from sources both external (legal, economic or market changes) and internal (poor asset performance, obsolescence, loss, etc.).

How is the potential impairment tested?

The carrying amount of the asset is compared with the recoverable amount, this being the higher of its fair value less costs of disposal and its value in use.

When must an impairment test be performed?

They are performed at the end of the financial year or when there are indications of impairment in the value of the assets. In the case of goodwill, impairment testing is mandatory, even if there is no indication of impairment.

How can Gesvalt help?

As an independent expert with 25 years of experience, Gesvalt provides greater confidence and facilitates the acceptance of accredited fair values in auditing processes. The valuation service allows the identification of Cash Generating Units and the allocation of goodwill. Moreover, it includes the preparation of valuation reports on assets subject to impairment testing and the defence and presentation of the report in front of the auditor.

Consultor Gesvalt
Roberto Guiñales
Head of Financial Valuation