Friday, October 5, 2007

An asset is considered impaired when its book value becomes irrecoverable

Impairment drill that churns oil and gas accountants

Chennai, Oct. 4 Even as the field personnel of oil and gas (O&G) companies continue to battle with many complexities to get us the fuel, their accounting colleagues are toiling with a different difficulty: how to apply the Accounting Standard on asset impairment.

“The requirements of the standard create many complications for companies in the O&G sector, not the least of which is the application of the CGU (cash generating unit) concept,” says Mr Sandeep Sharma, a Senior Professional in a member firm of Ernst & Young Global. “Given that each operation is unique, it may be some time before a clear industry practice is established.”

While the requirements of IAS (International Accounting Standard) 36, and more recently AS 28 (of the Institute of Chartered Accountants of India) on impairment of assets have endeavoured to clarify general ambiguities and provided direction in this matter, the finer points are yet to be understood and documented in the form of a complete accounting policy, adds Mr Sharma, during a recent interaction with Business Line.

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