IAS 36 - Impairment of Assets

1 I can't help you here, sorry. I don't have the BPP study text available so, unless you tell me how the answer has treated it, I can't explain the treatment but I would, on the face of it, agree with you that it should be impaired through the PorL account 2 What are you going to do with the revaluation surplus of $50,000 sitting in the Revaluation Reserve relating to this disposed asset? IF the company has been making an annual transfer out of Revaluation Reserve amounting to $5,000 per annum for the three years since revaluation, there should be $35,000 left in there that can now be released to retained earnings. If it hasn't made that annual transfer, then the full $50,000 can be released Is there no mention of maybe $39000 (35,000 + 4,000) or of 54,000 (50,000 + 4,000) in the answer? I'm batting blind here! Hope that helps you!

Thank you very much for your reply. I want to attach the image here but I cant so I will type everything here. Hope that you can help Question: Gains (Study text Question 7) Required Using the information below prepare for Gains Co for the year ended 31 December 20X9: (a) the statement of recognised income and expense, and (b) the statement of changes in equity. (a) Gains Co income statement extract Profit before interest and tax 792 Finance income 24 Finance cost (10) Profit before tax 806 Income tax expense (240) Profit for the period 566 (b) Non-current assets (i) Assets held at cost were impaired by $25,000. (ii) Freehold land and buildings were revalued to $500,000 (Book value $380,000). (iii) A previously revalued asset was sold for $60,000. Details of the revaluation are as follows: Book value at revaluation 30,000 Revaluation 50,000 BV (after revaluation) 80,000 Depreciation (80,000/10) × 3) 24,000 = 56,000 Gains Co has been following paragraph 41 of IAS 16 which allows a reserve transfer of the realised revaluation surplus (the difference between depreciation based on revalued amount and depreciation based on cost) as the asset is used to retained earnings. (iv) Details of investment properties are as follows: Original cost 120,000 Revaluation surplus 40,000 Value at 1.1.20X9 160,000 The properties had a valuation on 31 December 20X9 of $110,000. Gains Co previously accounted for its investment properties by crediting gains to a revaluation surplus as allowed by local GAAP. Gains Co now wishes to apply the fair value model of IAS 40 which states that gains and losses should be accounted for in the income statement. The elimination of the previous revaluation surplus is to be treated as a change in accounting policy in accordance with IAS 8. No adjustment has yet been made for the change in accounting policy or subsequent fall in value. (c) Share capital During the year the company had the following changes to its capital structure. (i) An issue of $200,000 $1 ordinary bonus shares capitalising its share premium reserve (ii) An issue of 400,000 $1 ordinary shares (issue price $1.40 per share). (d) Equity The book value of equity at the start of the year was as follows: Share capital 2,800,000 Share premium 1,150,000 Revaluation surplus 750,000 Retained earnings 2,120,000 Total 6,820,000 (e) Dividends Dividends paid during the year amounted to $200,000. Answer (given by BBP) (a) Statement of recognised income and expense 20X9 $’000 Gain on revaluation of properties 120 Net income recognised directly in equity 120 Profit for the period (566 – (W) 50) 516 Total recognised income and expense for the period 636 Note: The effect of the change in accounting policy would be shown at the foot of the comparative statement of recognised income and expense (not required by the question). Working Loss on investment property (160 – 110) (50) (b) Statement of changes in equity Share Share Revaluation Retained Total Capital Premium Surplus earnings Balance at 31 December 20X9: Share capital: 2800 + 600 = 3400 Share premium: 1150 - 40 = 1110 Retained Earnings: 2120 + 40(from changes in acc policies) -200 (div) + 516 (profit for the year) + 35 (realisation of revaluation reserve) = 2511 Revaluation Reserve: 750 - 40(changes in acc policies) +120 -35 = 795 Working: 1 Calculation of profit realised on sale of revalued asset Revaluation recognised in past 50,000 Less: amounts transferred to retained earnings: (80,000/10 – 30,000/10) × 3 (15,000) = 35,000 @Mike: They do realise 35000 to retained earnings, so I dont complain about it, I just didnt see they take into account the 4 for other income and dont deduct the 25 for impairment loss of the assets And my teacher told me that "Asset held at cost when impaired is not creditted to P&L", so I was so confused.

#1 "An asset held at cost when impaired is not credited to PorL" Your teacher is absolutely correct - in fact, it's not credited anywhere except in the asset account! #2 The 4 profit on disposal and the 25 impairment are already accounted for within the year's profits of 792! That's why you cannot see them in the BPP answer! OK?

For asset held at cost, impairment will be charged to P/L right ? I didnt undertsand #1

Anu, correct. So the impairment will be DEBITED to profit or loss and not credited as proposed by Mik2202's post

Sorry i didnt pay heed to the word credited.. Thanks Mike

The moral? RTFQ!