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PPE is recognised at higher of value in use and net realizable value (sale value – cost to sell).
Impairment is when the recoverable amount of the asset is lower than the carrying amount
Revaluation is when the FV of the asset increases or decreases. So when the value of the asset reduces in the market then is it revaluation loss or impairment ??
EX:
carrying amount of PPE is 2000 and the asset can be sold in the market for 2500 after incurring selling expenses (this is how Fair value is calculated right?) So in this case the asset is to be valued at 2500 right? 500 will go to revaluation reserve.
case 2 – carrying amount of ppe is 2000 and asset can be sold at the market at 1500 only after selling expenses. so there is revaluation loss of 500 or is it a impairment of 500.
I feel that FV can be determined thru the sale value in the market as there is a market for the asset and the Fv can be determined based on the available input in the market. Have i understood it correctly? Please correct me if i am wrong.
“Revaluation is when the FV of the asset increases or decreases”
Not really. Revaluation (involves the revaluation reserve) is where the asset value is greater than the carrying value but his only applies where the management decide to undertake the process of revaluing the entity’s assets. If no such decision is made, the value increase is not reflected
But, if there are any indications that assets may be impaired, the management must undertake an impairment review and, if applicable, reduce the carrying value of the impaired assets down to recoverable amount
If, following a revaluation, it subsequently appears that an asset’s value has fallen, then the necessary impairment will be set against the previous revaluation in so far as it has not been recognised in the intervening period. Any excess impairment will be written off against retained earnings
“so there is revaluation loss of 500 or is it a impairment of 500.”
It’s an impairment
OK?
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