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Dear Tutor,
I have small query. The cost model states that subsequent recognition of a PPE is Cost less Acc. dep less impairment loss.
I understand that the impairment loss is something we get when we are using revaluation method i.e. when the carrying value is more than the fair value of the asset.
So does this mean that firm will still have to calculate the impairment loss even if they opt for cost model to be prudent?
Also the differnce in cost model and the revaluation model is that the firm will be able to recognise any revaluation gain on fair value over assets carrying value. However, in case of revaluation loss, the firm has to recognised the impairment loss regardless of which ever methdo they opt to choose to determine the subsequent value of the asset.
Hi,
You are correct in your assumption of the measurement of PPE but an impairment can arise when we are using either the cost or revaluation model.
When calculating the impairment, the carrying value is the most up to date value from the accounts and will have been calculated based on the cost or revaluation model. This is then compared to the recoverable amount to determine the impairment, if at all there is one.
Thanks
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