Ias 36 impairment of assets (reversal )

Sshoaib10y ago

The company acquired a machine at a cost of $400 in the year 2001. The company policy is to charge deprecation straight line basis @10%. The useful life of machine is 10 years. At the end of 2002 year the recoverable amount of the machine was estimated Was estimated as $300 causing an impairment loss. Again after 4 years of acquisition of machine due to technological changes the recoverable amount was estimated as $272 causing a reversal of impairment loss. Please Could you tell me the last entry of reversals of impairment loss and deprecation at the end of year 2004 ?

MMikeLittleTutor10y ago#1

I have to assume (because you haven't made it clear) that the machine was bought on the first day of the accounting period in 2001 or that the company charges a full year's depreciation in the year of purchase Cost 400, depreciate 2 years at 40 to 2002 so cv now 320 Impair by 20 down to 300 Depreciate 2 more years at 37.5 (8 years left and 300 to depreciate) brings cv down to 225 Revalue to 272.......but no! Cannot revalue to a position that is greater than the asset would have been in if there had been no impairment. Without impairment, 400 depreciated for 4 years at 10% straight line would have had a cv of 240 and that's the limit of our reversal Plus, we have to reverse first the statement of profit or loss impairment of 20 So your journal entry becomes Dr Asset 15 (240 - 225) Cr Cost of sales 15 (reversing the impairment) Depreciation at end year 4? I've already depreciated before I did the revaluation. Depreciation going into the future, assuming still 6 years left, will be 40 per annum OK?

Sshoaib10y ago#2

Thanks a lot sir I have got a point. But there is some confusion in deprecation . In the solution of this question. The entry passed Accumulated impairment loss 20 P&l a/c 15 Accumulated deprecation 5 The above 2 point I got but why accumulated deprecation is 5.I m trying to pick the point but failed.

MMikeLittleTutor10y ago#3

The answer apparently has chosen to reverse completely the previous impairment - when compared with my answer, they have increased the asset by the full 20 but are only technically able to increase by 15 so the extra 5 has been included within the asset increase and also in the provision for depreciation increase Overall, the answer is the same as mine OK?

Sshoaib10y ago#4

Thank you sir. It's really helpful for me.

MMikeLittleTutor10y ago#5

You're welcome

HHasan5y ago#6

Dear Sir, What is commpany was using revaluation model.Could the asset value go above what it would have been,had there been no impairment.I assume after reversing impairment extra will go to OCI and asset will be recorded at new FV. In that case reversal will cause an increase in value of asset more than what it would have been if there was no impairment?

PP2-D2Tutor5y ago#7

Hi, Yes, we can still revalue it but if it goes above the amount that it would have been held at prior to any impairment the the revaluation goes through OCI and the revaluation surplus. Thanks