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Hi
So it is said that the impairment loss is the difference between its acquisition cost ( net of any principal repayment and amortisation ) and current fair value( for equity instruments) or recoverable amount( for debt instruments), less any impairment loss on that asset previously recognised in profit and loss!Can you sir please illustrate this definition using figures please?
My issues are what does net of any principal repayment and amortisation mean? and why do we have to deduct any impairment loss previously recognised and how is it done>?
“Net of any principal repayment” means that, during the life of the asset, we could have received payments which include interest as well as repayment of the debt. That should have been accounted for in the past. Thus, the amount that you should be looking at for impairment is the original value less any repayments against that original value ie the carrying amountshould represent the original value less any capital repayments.
The same principle applies with any previously recognised impairments – that is, if we have previously recognised an impairment of this asset, it should now be being carried at the reduced after-impairment value. All it is saying is that you don’t compare, when looking for a current impairment, the original value. We look at the carrying value which may already have been reduced by both past capital repayments AND previous impairments
OK?
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