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Hi sir mike hope u will be in good health, i jst wna knw abt that if we re conducting impairment test for the very First time on Non Cuurent Asset and we found that its recoverable amount is 4000 and its cv is 1000 ..wt entries re we gonna make if the asset is : 1. Measured at cost model 2. If asset is measured at revaluation model Similary tell me entries if cv is 4000 and recoverable amount is 1000 under both models You re best teacher thank u very much for u support always Mr Mike 🙂
Nd re we suppose to debit depreciation when we re charging gain /loss on impairment to Revalued asset ?
I mean r we supposed to remove previous depriciation in revaluation model when we impaired revalued asset ?
“its recoverable amount is 4000 and its cv is 1000 ..” no adjustment if under cost model
3,000 adjustment under fair value model
” if cv is 4000 and recoverable amount is 1000 ” impair by 3,000, both models
(“debit depreciation when we re charging gain /loss on impairment to Revalued asset” not happy about “charging gain /loss” the word “charge” is a technical expression and is synonymous with “debit” so when we charge the statement of profit or loss, we debit it. If it’s a gain, we credit the statement of profit or loss)
If there is a balance in the revaluation reserve in respect of that asset, then any impairment will go to the revaluation reserve up to the value in that reserve relating to that asset.
If impairment is greater than the revaluation reserve, the surplus will be debited to statement of profit or loss.
The credit entry will be to the asset account
OK?
Well i appreciate your effort, but i have couple of questions arising in my mind after reading it
COST MODEL
1.Well lets talk about cost model first…eg if assets recoverable amount is 4000 and its cv is 1000 , you said we should’nt make any adjustment, I know that in this scenerio there is no impairment so we re not gonna make any impairment adjustment, but my question to you is that shouldnt we increase asset by 4000 and credit income statement by 4000 if no then WHY?2. i will my second question through example, let suppose cost of asset is 100,000. Life of asset is 10 yrs at the end of year company decide to impair its asset and its Recoverable value is 75000.
Now we will debit dep by 10000 and cr Prov for dep by 10000, and will have a CV value of 90000 in contrast to R amout of 75000..
Now as as per rule, we re suppose to make this entry: Dr Income statement Cr. Asset by 15000. now after this adj we re left with asset balance of 85000, my Question to u is that although CV of asset is now its R.amount 75000 (after adj dep),but Cost of asset is still 85000 (not revalued), so Hw re we gonna dep this asset next year??…can u plz correct me and make next year I.S and SFP extract clearly showing next year Dep, its Cost, Accumulated Dep and Book valueNEXT YEAR INCOME STATEMENT
Dep= ?NEXT YEAR SFP
Cost A. dep Bv? ? ?
THANKU Very much…Open tuition is doin great job to help out students like :0“shouldnt we increase asset by 4000 and credit income statement by 4000 if no then WHY?”
Because you’re on the cost model. IF you want to revalue, then OK. But if you’re staying with the cost model, then that’s your decision
“NEXT YEAR INCOME STATEMENT
Dep= ?NEXT YEAR SFP
Cost A. dep Bv”New depreciation expense is 75,000 / 9 = 8,333
Next year statement of financial position is 66,667
So now we have Cost 85,000, Accumulated Depreciation 18,333, Carrying Value 66,667
OK?
Oh ok Great..i have a last question with respect to this topic kindly correct me if i am wrong, In this example i am using Cost model, if lets suppose Cv is 4000 and Recoverable amount is 1000, here we will charge impairment to Profit &loss and by debiting it and we wil credit the asset , Thats perfectly fine …Nw after couple of years we have test asset again for impairment and lets suppose its Cv is 2000 and recoverable amount is 5000 Now my Question to you is, As far as my understanding of the topic is concerned, here in this scenerio we re BOUND to increase the value of asset to its recoverable amount although its a Cost model but bcz of REVERSAL OF IMPAIRMENT CONCEPT we re BOUND to Dr asset by 3000 and credit income statement by 3000 right ?? But had that FIRST impairment test not taken place than we would have choice CHOICE To either make No adj (if we want to continue at cost model) or we would have CHOICE to makke REVALUATION adj (if we want to shift to revaluation model)…bt here in this scenerio we dont have a CHOICE To make adj. rather we re BOUND to make REVERSAL OF IMPAIRMENT by debiting Asset and by crediting Income statement Right ???..Kindly correct me if am wrong
Nd finally i wna knw abt intangible asset with indefinate life as per Ias 38 they dont get amortize and dont come in either Cost model and Revaluaition model in Ias 38 cz they dnt get amortize and amortization do take place in both models so we dont use cost and revaluation model for intangible asset wid indefinite life RIGHT ?? ….so my question is that we re testing intangible asset wid INDEFINATE LIFE for IMPAIRMENT and lets suppose Cv of intangible asset is 1000 and R amount is 4000 wt adjst re we gonna make and WHY? Thankz for ur coperation Mr . Little ur a great teacher 🙂
“we re BOUND to increase the value of asset to its recoverable amount although its a Cost model but bcz of REVERSAL OF IMPAIRMENT CONCEPT we re BOUND to Dr asset by 3000 and credit income statement by 3000 right” – never heard of a “reversal of impairment concept” that requires such a reversal.
I’d be interested if you could quote me the IAS paragraph that requires it to be reversed
The following is an extract from the IASPLUS summary of IAS 38
“Measurement subsequent to acquisition: intangible assets with indefinite useful lives
An intangible asset with an indefinite useful life should not be amortised.
Its useful life should be reviewed each reporting period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite should be accounted for as a change in an accounting estimate.
The asset should also be assessed for impairment in accordance with IAS 36.”
Any impairment required should be expensed through statement of profit or loss
OK?
And atlast i need a CONFIRMATION frm u that in an example above in which u prepared next year extract for Income statement and Balance sheet..in that example r we supposed to depriciate 75000(which is recoverable amount in that eg) Every Year ??
I am quoting u ias 36 words kindly explain me that i think REVERSAL OF IMPAIRMENT IS JST FOR CGU ..explain me this thing please ……An entity shall assess at the end of each reporting period whether there is any indication that an impairment loss recognised in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the entity shall estimate the recoverable amount of that asset.
An impairment loss recognised in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. A reversal of an impairment loss for a cash-generating unit shall be allocated to the assets of the unit, except for goodwill, pro rata with the carrying amounts of those assets. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years.
A reversal of an impairment loss for an asset other than goodwill shall be recognised immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another IFRS (for example, the revaluation model in IAS 16 Property, Plant and Equipment). Any reversal of an impairment loss of a revalued asset shall be treated as a revaluation increase in accordance with that other IFRS.
An impairment loss recognised for goodwill shall not be reversed in a subsequent period.Nd Lastly i wna ask a simple question abt Impairment of Intangible Asset with indefinite life lets suppose we re testing o asset for impairment and cv of i Asset is 1000 and revoverable amount is 4000 what adjustment ahould we make nw ? I knw its nt impairment bt what adj will we make ?
I still don’t see it as a requirement. I don’t even see that it’s necessary for the directors to even consider whether there has been a reversal.
If they do, and if there has, then yes reverse the entry that was recorded on the event of the impairment
Ahh ok its summing up nicely 🙂 Under cost model if lets suppose cv is 1000 and recoverable amount is 4000 then we ppl have an option to either make no entry (to keep it at cost model) or to to Revalue the asset by crediting rev reserve, debiting dep and by adjustin Asset wid Balance RIGHT ?? Nd seconly i wna ask that in an example OF INTANGIBLE ASSET ABOVE u said we wont make any adj wid respect to intangible asset may i ask its REASON? Plus does that rule also apply to good will ?? ….Thank u soooooo much Mr little u re a great teacher as well as great human bieng 🙂
We would adjust if we were operating the revaluation model but if we’re on cost model, then no adjustment
No, goodwill is established at date of acquisition. the only thing that is going to happen to the goodwill figure is that it will be impaired following the directors. annual impairment review.
And finally, it doesn’t matter how many times you feel it necessary to tell me I’m a great teacher. If you carry on I could quite possibly start to believe you
What does upset me is that Pakistan are 1 – 0 up in the three match series having delayed unconscionably slowly in the first test to deny England a glorious victory. Never mind, there’s always Sharjah where we aim to level the series
But u had forgotten to tell me abt the REASON THAT Y WONT WE INCREASE VALUE OF INTANGIBLE ASSET Wid indefinite life When we do impairment test heres eg again lets suppose cv is 1000 and r amount is 4000 then WHY wont we make any adj is it bcz of the fact that we dont classify Intangible asset WID INDEFINATE LIFE in Revaluation model (cz they dont have a life on which amortization take place )thats y we shouldnt make any adj ..so that they dont come at Revalue amount ?? Correct me if m wrong nd as far as Cricket is concerened its a passion here in my part of world ..nd our MESSI YASIR SHAH is all geared up to take challenege frm england batsman 😉 bt i afraid the day cook stands on crease he is tremendous batsman 🙂
Nd kindly use the same eg for good will nd tell me if we re suppose to make any adj if cv is 1000 and r amount is 4000 and its Reason as well 🙂
If the company wishes to revalue, it can. But there’s no requirement to
If it does revalue, then the credit will surely go to the revaluation reserve.
But if it’s on the cost model, then it doesn’t matter what the recoverable amount is – the asset will continue to be carried at cost less accumulated depreciation
But accordin to my knwldg intangible asset wid indefinate live doesnt subsequently measure on either cost or revaluation model in Ias 38 they re jst carried at their intial cost and tested for impairment annually isnt it right ?
I think that intangible asset wid INDEFINATE life do get SUBSEQUENTLY MEASURE at either cost or revaluation model RIGHT OR WRONG ??
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