Ind AS 38 governs accounting for intangible assets — identifiable non-monetary assets without physical substance. From capitalised software development costs to acquired brand names, drug licences to customer relationships recognised in a business combination, intangibles are central to the balance sheets of India's knowledge-economy companies. The standard draws a sharp line between what can be recognised as an asset and what must be expensed — and the consequences are significant for reported EBITDA, profit, and balance sheet strength.
What Is an Intangible Asset? Core Criteria
Under Ind AS 38, an intangible asset is an identifiable non-monetary asset without physical substance. Three conditions must all be met:
- Identifiability: Separable from the entity (can be sold, transferred, licensed independently), OR arises from contractual/legal rights (even if inseparable)
- Control: Entity has power to obtain future economic benefits from the resource and can restrict others' access
- Future economic benefits: Expected inflow of revenues, cost savings, or other economic benefits attributable to the asset
Examples: patents, copyrights, customer lists, software licences, brand names (acquired), franchise rights, customer relationships, drug approvals (ANDA, NDA), mining rights.
ℹNot intangible assets under Ind AS 38: Goodwill arising from business combinations (governed by Ind AS 103), financial assets (Ind AS 109), deferred tax assets (Ind AS 12), and assets arising from insurance contracts. Internally generated goodwill, brands, mastheads, customer lists cannot be recognised as assets — they must be expensed.
Recognition: Acquired vs Internally Generated
Recognition depends critically on whether the intangible was acquired externally or generated internally.
| Source | Recognition | Initial Measurement |
|---|
| Separately acquired (e.g., patent purchased) | Recognised as asset if identifiable, controllable, future benefits probable | Cost = purchase price + directly attributable costs to prepare for intended use |
| Acquired in business combination (Ind AS 103 PPA) | Recognised separately from goodwill if fair value can be reliably measured | Fair value at acquisition date (even if not on acquiree's balance sheet) |
| Internally generated (brand, masthead, customer list) | Cannot be recognised — always expensed | N/A |
| Internally generated — development phase (qualifying) | Recognised if all 6 criteria met (see below) | Directly attributable costs from date criteria first met |
| Received as government grant | Can recognise at fair value or nominal amount | Per Ind AS 20 |
The R&D Rule: Research Always Expensed, Development Maybe Capitalised
This is the most practically important part of Ind AS 38 for pharma, tech, and industrial companies. The standard distinguishes research from development:
Research Phase
Original, planned investigation to obtain new scientific/technical knowledge and understanding
Always expensed — no exceptions. Cannot be capitalised regardless of outcome probability.
Examples: laboratory studies, testing of alternatives, searching for new knowledge
Development Phase
Application of research findings to plan/design new or substantially improved products/processes
Capitalised only if ALL 6 criteria are met
Examples: prototype testing, design of tools/jigs/dies, pilot plant design
The 6 Development Capitalisation Criteria (All Must Be Met)
- Technical feasibility of completing the intangible so it will be available for use or sale
- Intention to complete and use/sell it
- Ability to use or sell the asset
- Probable future economic benefits — demonstrated by existence of a market or internal usefulness
- Adequate technical, financial and other resources to complete development
- Ability to reliably measure expenditure attributable to the intangible during development
⚠Phase segregation is challenging in practice: Many R&D projects seamlessly transition from research to development. Ind AS 38 requires entities to allocate expenditure between phases — but where the line is unclear, the expenditure must be treated as research (i.e., expensed). This creates significant judgement and is an area of audit scrutiny.
Amortisation: Finite vs Indefinite Useful Life
The amortisation treatment depends on the useful life classification:
| Category | Useful Life | Amortisation | Impairment Testing |
|---|
| Finite useful life | Determinable (years or units of production) | Amortised systematically over useful life; reviewed annually | Only when impairment indicators exist |
| Indefinite useful life | No foreseeable limit to period of economic benefits | NOT amortised | Annual impairment test required (even without indicators) |
Residual value of a finite-life intangible is assumed to be zero unless:
- A third party is committed to buy the asset at end of its useful life, OR
- There is an active market for the asset and residual value can be reliably estimated
Amortisation method: Must reflect the pattern of consumption of expected economic benefits. Straight-line is most common; units-of-production can be used if usage pattern is determinable.
✓ Common useful lives in India (Ind AS 38):
- Capitalised software (development costs): 3–5 years
- Customer relationships (from PPA): 5–15 years
- Patents: remaining legal life or economic life, whichever is shorter
- Drug approvals/ANDAs: economic life (typically 10–20 years)
- Brand names (finite): per contractual/market assessment
- Brand names (indefinite): no amortisation; annual impairment test
Impairment of Intangibles
Impairment of intangibles is governed by Ind AS 36 (Impairment of Assets). Key points:
- Intangibles with indefinite useful life (and goodwill): mandatory annual impairment test regardless of whether indicators exist
- All other intangibles: impairment test only when there is an indicator of impairment
- Impairment loss = Carrying Amount minus Recoverable Amount (higher of value in use and fair value less costs to sell)
- Reversal of impairment allowed for intangibles (except goodwill) if circumstances change and impairment no longer exists
See our Ind AS 36 guide for the full impairment methodology.
Case Study: TCS — Software Development Capitalisation
💻 TCS: Internal-Use Software Development Costs
Tata Consultancy Services | Ind AS 38 Application | FY 2024–25
TCS, India's largest IT company, develops significant proprietary software platforms — including its BaNCS banking platform, Ignio AI, and various industry-specific solutions. How does Ind AS 38 apply?
Research Phase (Expensed)
Initial market research, feasibility studies, proof-of-concept exploratory work
Development Phase (Capitalised if criteria met)
Detailed design, coding, testing of defined product — once technical feasibility established
Typical Useful Life
3–5 years for application software; 5–7 years for platform software
TCS Disclosure (FY25)
Software (intangibles) carried at cost less amortisation; amortised over 3–5 years on straight-line basis
TCS's FY25 annual report shows ₹1,200+ crore in intangible assets (software and IP), amortised at approximately ₹400–500 crore per year. Internal-use software that doesn't meet Ind AS 38 development criteria is expensed in the same period — creating a conservative earnings impact in development years.
Case Study: Sun Pharma — Drug Discovery R&D
💊 Sun Pharmaceutical: ANDA Portfolio & R&D Treatment
Sun Pharmaceutical Industries | Ind AS 38 Application | FY 2024–25
Sun Pharma's competitive advantage lies in its ANDA (Abbreviated New Drug Application) pipeline and specialty drug portfolio. Ind AS 38 applies differently to different types of pharma intangibles:
| Intangible Type | Ind AS 38 Treatment | Balance Sheet Impact |
|---|
| Acquired ANDAs / product rights | Capitalised at acquisition cost; finite useful life | Yes — significant asset on balance sheet |
| In-house ANDA filing costs | Research phase = expensed; development capitalised only post-approval likelihood established | Limited — most expensed |
| Specialty pharma brands (acquired) | Capitalised; typically indefinite life if strong brand equity | Yes — subject to annual impairment test |
| Internal drug discovery (early stage) | Always expensed — research phase | No — P&L impact only |
Sun Pharma's FY25 balance sheet carries ₹8,000–10,000 crore in intangible assets, predominantly from acquired branded generics businesses (Ranbaxy merger, Halol acquisitions). Their R&D spend of ₹3,500+ crore in FY25 is largely expensed — creating a drag on reported EBITDA but building future pipeline value not visible on the balance sheet.
FY25 R&D Spend
~₹3,600 crore (~8.5% of revenue)
Portion Capitalised
Minimal — most in research phase
Intangibles on Balance Sheet
~₹9,200 crore (FY25)
Amortisation per year
~₹1,200 crore (impacts reported PAT)
Case Study: Hindustan Unilever — Acquired Brands & Trademarks
🌄 HUL: Brand Accounting Under Ind AS 38
Hindustan Unilever Limited | Ind AS 38 Application | FY 2024–25
HUL owns iconic brands like Surf Excel, Lux, Dove, Lifebuoy, Horlicks (acquired from GSK Consumer). How are these brands treated?
Key principle: Internally developed brands (built organically by HUL over decades — Surf, Lux, Lifebuoy) cannot be capitalised under Ind AS 38. They are not on HUL's balance sheet at all — regardless of their economic value running into thousands of crores.
Acquired brands (Horlicks, Boost, Viva — acquired via the GSK Consumer Healthcare acquisition in 2020) are capitalised at their fair value on the acquisition date.
| Brand Category | Balance Sheet? | Ind AS 38 Treatment |
|---|
| Horlicks, Boost (acquired) | Yes — at acquisition FV (~₹8,000+ crore) | Indefinite useful life; no amortisation; annual impairment test |
| Surf Excel, Lux, Dove (organic) | No | Cannot be recognised — internally generated brand |
This creates the famous "brand gap" — HUL's market cap of ~₹5-6 lakh crore vs book value of ~₹9,000 crore. The difference largely represents organic brand value + franchise not captured in IGAAP/Ind AS financial statements.
Comparison: Ind AS 38 vs Old IGAAP
Old IGAAP (AS 26)
- Goodwill from acquisitions could be amortised or written off against reserves
- R&D capitalisation criteria were less rigorous — more flexible
- Useful life of intangibles presumed not to exceed 10 years (rebuttable)
- Indefinite useful life concept less explicitly defined
- Revaluation of intangibles generally not permitted
Ind AS 38
- Goodwill NOT amortised (Ind AS 103) — annual impairment test only
- Strict research vs development distinction; research always expensed
- No presumptive useful life cap — assessment based on facts
- Indefinite useful life explicitly recognised; no amortisation
- Revaluation model available (requires active market — rare for intangibles)
Key Disclosures Required Under Ind AS 38
Companies must disclose for each class of intangible assets:
- Whether useful lives are finite or indefinite; if finite, the useful lives or amortisation rates
- Amortisation methods used
- Gross carrying amount and accumulated amortisation at beginning and end of period
- Reconciliation of carrying amount — additions, disposals, amortisation, impairment losses
- For indefinite-life intangibles: carrying amount and reasons supporting indefinite life assessment
- Description, carrying amount, and remaining amortisation period of any individually material intangible
- For intangibles acquired in business combinations: fair value and amortisation period
- Amount of research and development expenditure recognised as expense in the period
Journal Entries: Capitalised Software Development Costs
Dr Intangible Asset — Software Development
₹50,00,000
Cr Salaries & Wages Payable (directly attributable)
₹40,00,000
Cr Third-party Development Costs Payable
₹10,00,000
Annual Amortisation (over 5-year useful life)
Dr Amortisation — Software Development
₹10,00,000
Cr Accumulated Amortisation — Software
₹10,00,000
Research Expenditure (always expensed)
Dr Research & Development Expense
₹25,00,000
Cr Salaries / Vendor Payable
₹25,00,000
Frequently Asked Questions
Can a company capitalise internally developed brand value under Ind AS 38? ▼
No. Ind AS 38 explicitly prohibits recognition of internally generated brands, mastheads, publishing titles, customer lists, and similar items as intangible assets. The standard concludes that expenditure on these items cannot be distinguished from the cost of developing the business as a whole. This is why HUL's iconic organic brands (Surf, Lux, Dove) are not on its balance sheet despite being worth tens of thousands of crores in market value. Only brands acquired from third parties (through purchase or business combination) can be recognised.
When can a pharma company capitalise drug development costs under Ind AS 38? ▼
A pharma company can capitalise drug development costs only after it can demonstrate all six Ind AS 38 development criteria simultaneously — including technical feasibility (typically established only after Phase 2/3 clinical trial success), intention to complete, ability to use/sell, probable economic benefits (regulatory approval with commercial market), adequate resources, and reliable measurement. In practice, given the high failure rates in pharma R&D and regulatory uncertainty, most companies expense all pre-approval drug development costs. Capitalisation typically begins only after regulatory approval or at very late-stage development with high approval probability.
What is the difference between amortisation and impairment for intangibles? ▼
Amortisation is the systematic allocation of the cost of a finite-life intangible asset over its useful life — it's a planned, predictable charge that reduces the carrying amount each period regardless of market conditions. Impairment is a sudden, unplanned write-down triggered when the carrying amount exceeds the recoverable amount (due to market changes, obsolescence, legal challenges, etc.). Both reduce the intangible's carrying amount, but amortisation is budgeted and expected; impairment reflects unexpected deterioration. Indefinite-life intangibles are not amortised at all but must be tested for impairment annually — so impairment is the only mechanism that reduces their carrying amount.
Accounting Standards · Ind AS
Ind AS 38: Intangible Assets — Recognition, Amortisation & Impairment
Finin2min Research Desk·June 2026·14 min readICAI / MCAInd AS Series
StandardInd AS 38Ind AS 38: Intangible Assets — Recognition, Amortisation & ImpairmentMCA Notification ↗
Ind AS 38 governs accounting for intangible assets — identifiable non-monetary assets without physical substance. From capitalised software development costs to acquired brand names, drug licences to customer relationships recognised in a business combination, intangibles are central to the balance sheets of India's knowledge-economy companies. The standard draws a sharp line between what can be recognised as an asset and what must be expensed — and the consequences are significant for reported EBITDA, profit, and balance sheet strength.
What Is an Intangible Asset? Core Criteria
Under Ind AS 38, an intangible asset is an identifiable non-monetary asset without physical substance. Three conditions must all be met:
- Identifiability: Separable from the entity (can be sold, transferred, licensed independently), OR arises from contractual/legal rights (even if inseparable)
- Control: Entity has power to obtain future economic benefits from the resource and can restrict others' access
- Future economic benefits: Expected inflow of revenues, cost savings, or other economic benefits attributable to the asset
Examples: patents, copyrights, customer lists, software licences, brand names (acquired), franchise rights, customer relationships, drug approvals (ANDA, NDA), mining rights.
ℹNot intangible assets under Ind AS 38: Goodwill arising from business combinations (governed by Ind AS 103), financial assets (Ind AS 109), deferred tax assets (Ind AS 12), and assets arising from insurance contracts. Internally generated goodwill, brands, mastheads, customer lists cannot be recognised as assets — they must be expensed.
Recognition: Acquired vs Internally Generated
Recognition depends critically on whether the intangible was acquired externally or generated internally.
| Source | Recognition | Initial Measurement |
|---|
| Separately acquired (e.g., patent purchased) | Recognised as asset if identifiable, controllable, future benefits probable | Cost = purchase price + directly attributable costs to prepare for intended use |
| Acquired in business combination (Ind AS 103 PPA) | Recognised separately from goodwill if fair value can be reliably measured | Fair value at acquisition date (even if not on acquiree's balance sheet) |
| Internally generated (brand, masthead, customer list) | Cannot be recognised — always expensed | N/A |
| Internally generated — development phase (qualifying) | Recognised if all 6 criteria met (see below) | Directly attributable costs from date criteria first met |
| Received as government grant | Can recognise at fair value or nominal amount | Per Ind AS 20 |
The R&D Rule: Research Always Expensed, Development Maybe Capitalised
This is the most practically important part of Ind AS 38 for pharma, tech, and industrial companies. The standard distinguishes research from development:
Research Phase
Original, planned investigation to obtain new scientific/technical knowledge and understanding
Always expensed — no exceptions. Cannot be capitalised regardless of outcome probability.
Examples: laboratory studies, testing of alternatives, searching for new knowledge
Development Phase
Application of research findings to plan/design new or substantially improved products/processes
Capitalised only if ALL 6 criteria are met
Examples: prototype testing, design of tools/jigs/dies, pilot plant design
The 6 Development Capitalisation Criteria (All Must Be Met)
- Technical feasibility of completing the intangible so it will be available for use or sale
- Intention to complete and use/sell it
- Ability to use or sell the asset
- Probable future economic benefits — demonstrated by existence of a market or internal usefulness
- Adequate technical, financial and other resources to complete development
- Ability to reliably measure expenditure attributable to the intangible during development
⚠Phase segregation is challenging in practice: Many R&D projects seamlessly transition from research to development. Ind AS 38 requires entities to allocate expenditure between phases — but where the line is unclear, the expenditure must be treated as research (i.e., expensed). This creates significant judgement and is an area of audit scrutiny.
Amortisation: Finite vs Indefinite Useful Life
The amortisation treatment depends on the useful life classification:
| Category | Useful Life | Amortisation | Impairment Testing |
|---|
| Finite useful life | Determinable (years or units of production) | Amortised systematically over useful life; reviewed annually | Only when impairment indicators exist |
| Indefinite useful life | No foreseeable limit to period of economic benefits | NOT amortised | Annual impairment test required (even without indicators) |
Residual value of a finite-life intangible is assumed to be zero unless:
- A third party is committed to buy the asset at end of its useful life, OR
- There is an active market for the asset and residual value can be reliably estimated
Amortisation method: Must reflect the pattern of consumption of expected economic benefits. Straight-line is most common; units-of-production can be used if usage pattern is determinable.
✓ Common useful lives in India (Ind AS 38):
- Capitalised software (development costs): 3–5 years
- Customer relationships (from PPA): 5–15 years
- Patents: remaining legal life or economic life, whichever is shorter
- Drug approvals/ANDAs: economic life (typically 10–20 years)
- Brand names (finite): per contractual/market assessment
- Brand names (indefinite): no amortisation; annual impairment test
Impairment of Intangibles
Impairment of intangibles is governed by Ind AS 36 (Impairment of Assets). Key points:
- Intangibles with indefinite useful life (and goodwill): mandatory annual impairment test regardless of whether indicators exist
- All other intangibles: impairment test only when there is an indicator of impairment
- Impairment loss = Carrying Amount minus Recoverable Amount (higher of value in use and fair value less costs to sell)
- Reversal of impairment allowed for intangibles (except goodwill) if circumstances change and impairment no longer exists
See our Ind AS 36 guide for the full impairment methodology.
Case Study: TCS — Software Development Capitalisation
💻 TCS: Internal-Use Software Development Costs
Tata Consultancy Services | Ind AS 38 Application | FY 2024–25
TCS, India's largest IT company, develops significant proprietary software platforms — including its BaNCS banking platform, Ignio AI, and various industry-specific solutions. How does Ind AS 38 apply?
Research Phase (Expensed)
Initial market research, feasibility studies, proof-of-concept exploratory work
Development Phase (Capitalised if criteria met)
Detailed design, coding, testing of defined product — once technical feasibility established
Typical Useful Life
3–5 years for application software; 5–7 years for platform software
TCS Disclosure (FY25)
Software (intangibles) carried at cost less amortisation; amortised over 3–5 years on straight-line basis
TCS's FY25 annual report shows ₹1,200+ crore in intangible assets (software and IP), amortised at approximately ₹400–500 crore per year. Internal-use software that doesn't meet Ind AS 38 development criteria is expensed in the same period — creating a conservative earnings impact in development years.
Case Study: Sun Pharma — Drug Discovery R&D
💊 Sun Pharmaceutical: ANDA Portfolio & R&D Treatment
Sun Pharmaceutical Industries | Ind AS 38 Application | FY 2024–25
Sun Pharma's competitive advantage lies in its ANDA (Abbreviated New Drug Application) pipeline and specialty drug portfolio. Ind AS 38 applies differently to different types of pharma intangibles:
| Intangible Type | Ind AS 38 Treatment | Balance Sheet Impact |
|---|
| Acquired ANDAs / product rights | Capitalised at acquisition cost; finite useful life | Yes — significant asset on balance sheet |
| In-house ANDA filing costs | Research phase = expensed; development capitalised only post-approval likelihood established | Limited — most expensed |
| Specialty pharma brands (acquired) | Capitalised; typically indefinite life if strong brand equity | Yes — subject to annual impairment test |
| Internal drug discovery (early stage) | Always expensed — research phase | No — P&L impact only |
Sun Pharma's FY25 balance sheet carries ₹8,000–10,000 crore in intangible assets, predominantly from acquired branded generics businesses (Ranbaxy merger, Halol acquisitions). Their R&D spend of ₹3,500+ crore in FY25 is largely expensed — creating a drag on reported EBITDA but building future pipeline value not visible on the balance sheet.
FY25 R&D Spend
~₹3,600 crore (~8.5% of revenue)
Portion Capitalised
Minimal — most in research phase
Intangibles on Balance Sheet
~₹9,200 crore (FY25)
Amortisation per year
~₹1,200 crore (impacts reported PAT)
Case Study: Hindustan Unilever — Acquired Brands & Trademarks
🌄 HUL: Brand Accounting Under Ind AS 38
Hindustan Unilever Limited | Ind AS 38 Application | FY 2024–25
HUL owns iconic brands like Surf Excel, Lux, Dove, Lifebuoy, Horlicks (acquired from GSK Consumer). How are these brands treated?
Key principle: Internally developed brands (built organically by HUL over decades — Surf, Lux, Lifebuoy) cannot be capitalised under Ind AS 38. They are not on HUL's balance sheet at all — regardless of their economic value running into thousands of crores.
Acquired brands (Horlicks, Boost, Viva — acquired via the GSK Consumer Healthcare acquisition in 2020) are capitalised at their fair value on the acquisition date.
| Brand Category | Balance Sheet? | Ind AS 38 Treatment |
|---|
| Horlicks, Boost (acquired) | Yes — at acquisition FV (~₹8,000+ crore) | Indefinite useful life; no amortisation; annual impairment test |
| Surf Excel, Lux, Dove (organic) | No | Cannot be recognised — internally generated brand |
This creates the famous "brand gap" — HUL's market cap of ~₹5-6 lakh crore vs book value of ~₹9,000 crore. The difference largely represents organic brand value + franchise not captured in IGAAP/Ind AS financial statements.
Comparison: Ind AS 38 vs Old IGAAP
Old IGAAP (AS 26)
- Goodwill from acquisitions could be amortised or written off against reserves
- R&D capitalisation criteria were less rigorous — more flexible
- Useful life of intangibles presumed not to exceed 10 years (rebuttable)
- Indefinite useful life concept less explicitly defined
- Revaluation of intangibles generally not permitted
Ind AS 38
- Goodwill NOT amortised (Ind AS 103) — annual impairment test only
- Strict research vs development distinction; research always expensed
- No presumptive useful life cap — assessment based on facts
- Indefinite useful life explicitly recognised; no amortisation
- Revaluation model available (requires active market — rare for intangibles)
Key Disclosures Required Under Ind AS 38
Companies must disclose for each class of intangible assets:
- Whether useful lives are finite or indefinite; if finite, the useful lives or amortisation rates
- Amortisation methods used
- Gross carrying amount and accumulated amortisation at beginning and end of period
- Reconciliation of carrying amount — additions, disposals, amortisation, impairment losses
- For indefinite-life intangibles: carrying amount and reasons supporting indefinite life assessment
- Description, carrying amount, and remaining amortisation period of any individually material intangible
- For intangibles acquired in business combinations: fair value and amortisation period
- Amount of research and development expenditure recognised as expense in the period
Journal Entries: Capitalised Software Development Costs
Dr Intangible Asset — Software Development
₹50,00,000
Cr Salaries & Wages Payable (directly attributable)
₹40,00,000
Cr Third-party Development Costs Payable
₹10,00,000
Annual Amortisation (over 5-year useful life)
Dr Amortisation — Software Development
₹10,00,000
Cr Accumulated Amortisation — Software
₹10,00,000
Research Expenditure (always expensed)
Dr Research & Development Expense
₹25,00,000
Cr Salaries / Vendor Payable
₹25,00,000
Frequently Asked Questions
Can a company capitalise internally developed brand value under Ind AS 38? ▼
No. Ind AS 38 explicitly prohibits recognition of internally generated brands, mastheads, publishing titles, customer lists, and similar items as intangible assets. The standard concludes that expenditure on these items cannot be distinguished from the cost of developing the business as a whole. This is why HUL's iconic organic brands (Surf, Lux, Dove) are not on its balance sheet despite being worth tens of thousands of crores in market value. Only brands acquired from third parties (through purchase or business combination) can be recognised.
When can a pharma company capitalise drug development costs under Ind AS 38? ▼
A pharma company can capitalise drug development costs only after it can demonstrate all six Ind AS 38 development criteria simultaneously — including technical feasibility (typically established only after Phase 2/3 clinical trial success), intention to complete, ability to use/sell, probable economic benefits (regulatory approval with commercial market), adequate resources, and reliable measurement. In practice, given the high failure rates in pharma R&D and regulatory uncertainty, most companies expense all pre-approval drug development costs. Capitalisation typically begins only after regulatory approval or at very late-stage development with high approval probability.
What is the difference between amortisation and impairment for intangibles? ▼
Amortisation is the systematic allocation of the cost of a finite-life intangible asset over its useful life — it's a planned, predictable charge that reduces the carrying amount each period regardless of market conditions. Impairment is a sudden, unplanned write-down triggered when the carrying amount exceeds the recoverable amount (due to market changes, obsolescence, legal challenges, etc.). Both reduce the intangible's carrying amount, but amortisation is budgeted and expected; impairment reflects unexpected deterioration. Indefinite-life intangibles are not amortised at all but must be tested for impairment annually — so impairment is the only mechanism that reduces their carrying amount.