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Q:The directors wish to reverse the impairment loss calculated as at 31 May 20X4, on the grounds that, using
the same cash flows, the value in use of the non-current assets is now above the carrying value. However,
while IAS 36 requires an assessment at each reporting date of whether an impairment loss has decreased,
this does not apply to the unwinding of the discount (or goodwill). Since the same cash flows have been
used, the increase in value in use is due to the unwinding of the discount, and so cannot be reversed.(what does it mean by unwinding of the discount and causing increase in value in use of asset) ?
Hi,
Unwinding the discount is the process of increasing the value of a liability from it being recorded at its present value to its settlement value through a finance charge each year.
Examples you’ll have seen are provisions for dismantling an asset at the end of its useful life. Each year we will DR PPE CR Provision with the effective interest cost.
In assessing the value in use they are saying that it is now higher when we incorporate the unwinding of the discount, but this is prohibited by the standard as the cash flows remain the same and so the value in use remains the same too.
Don’t worry too much about this minor technicality.
Thanks
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