GE Shipping is the largest shipping company in private sector in India. As on 31st March 2009, it had 39 ships in its fleet with a total tonnage of 2,881,624. The company reviews the carrying amounts of tangible and intangible assets each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated in order to determine the extent of impairment loss, if any. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The impairment loss, if any, is recognized in the statement of profit and loss in the period in which impairment takes place. 

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, however, subject to the increased carrying amount not exceeding the carrying amount that would have been determined (net of amortization of depreciation) had no impairment loss been recognized for the asset in prior accounting periods. 

During the year 2008–09, the company recognized an impairment of ₹ 70 crore in respect of one dry bulk carrier in accordance with Accounting Standard (AS) 28 consequent to a sharp fall in the recoverable value of the said asset. In the opinion of the management, the book value of this asset, after correcting for the impairment recognized is aligned closer to the current market price and also broadly reflected the earnings expectations from it. For the year 2008–09, the company charged depreciation of ₹ 348.48 crore and in addition impairment loss of ₹ 70 crore as aforesaid was provided for.

Questions for Discussion

1. What is the purpose behind impairment of assets? How is impairment different from depreciation?

2. What are factors GE Shipping Limited might have considered to arrive at the figure of impairment loss?

3. What is the impact of impairment loss on the profit and loss statement and balance sheet of the company?

4. Assume that on the next balance sheet date the management estimates that the carrying amount of the vessel in question has increased by ₹ 60 crore. What will be the impact of such reassessment?