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Hello
There is a question in BPP Course Notes p.74. It goes like this. A head office building with a carrying amount of 140 is estimated to have a recoverable amt of 90 due to falling property values in the area.An impairment loss of 50 is recognised.
After 3 years property prices in the area have risen, and the recovrable amt increases to 120. The carryng amt of the building had the impariment not occured would have been 110.
Calculate the revarsal of impairment.
Answer is : reversal of impairment loss 20 and new carrying value 110.I have 2 questions:
I)What accounts are affected by the entry of 50 and 20 (impairment and its reversal) ? Are the following entries correct?
1.when impairment takes place:
DR Impairment loss (expense) 50 SPL
CR Building 50 (SFP)
2.when we reverse the impairment:
CR Impairment loss (reduction in expense) 20 (SPL)
DR Building 20 (SFP)II) Is the amount of impairment that we reverse the difference between the carrying amount based on historic cost and the current carrying amount?
Thank you!
Hi,
We cannot increase the value of the asset above the carrying value it would have been held at had no impairment occurred. So we cannot increase the value from the 90 to the 120, we can only increase it to the 110 and hence an increase of 20.
The journal entries that you’ve posted are correct too, well done!
Thanks
Hello.
I have a question.
Sam Ltd aquired non current assets on 1 Jan 20X1 at a cost of $30 000. At that date, the asset had an estimated useful life of ten years. Sam does not revalue this type of asset, but accounts for it on the basis of depreciated historical cost. At 31 Dec 20X2, the asset was subject to an impairment review and had a recoverable amount of $16 000.At 31 Dec 20X5 , the impairment was reversed and now the recoverable amount is $40000.
What will be the entries for the reversal of impairment loss?
In my calculations, I got $8000 impairment loss.
Hi,
You reverse out the impairment through profit or loss first, and any excess goes through OCI. The initial reversal will only be allowed up to the amount that the asset would have been if no impairment had originally taken place. If my calculations are correct then the entry at Dec X5 is as follows:
CR SPL 5,000 (10,000 CV now vs 15,000 CV if not impairment)
CR OCI 35,000 (balancing figure)
DR PPE 40,000Thanks
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