- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
.
- Posts
Hi Mike!
I actually have some issues with impairment of assets. Could you explain what does the following sentence means:
“If the impairment loss relates to an asset that has previously been revalued upwards, it is first offset against any remaining revaluation surplus.”
Thanks.
Asset carrying value $700,000, remaining useful life 10 years
Revalued to $1,000,000, written off over 10 years
2 years later, impaired down to $750,000, so a $50,000 impairment (($1,000,000 – 2 x $100,000) – $750,000)
Are you going to debit Statement of Profit or Loss with $50,000
No!
You’ll debit that $50,000 impairment to Revaluation Reserve and leave $250,000 in that reserve
We could have been doing an annual transfer from Revaluation Reserve, through Statement of Changes in Equity, to Retained Earnings of $60,000 (2 x $30,000) so Revaluation Reserve could now be only $240,000
With the impairment, this will reduce further to $190,000
What the extract is saying is that, where we have an impairment of an asset that has previously been revalued upwards, the impairment is first set against the revaluation reserve in so far as that reserve has not been written off
Is that better?
- The topic ‘impairment of assets’ is closed to new replies.