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Hello Mike
Hope you are fine.My question is about reversal of impairment.
Just an easy example! Suppose at the beginning of the year the entity buys an asset for $100 (10yrs) . At the year end the entity revalued the asset to $54:
So CV = 100-10 =90
Fair Value = 54
So there is an impairment loss = 36, so Dr P&L 36Now at the end of the second year the company revalued the asset to $120.
So CV=54-6=48
Fair Value = 120
so the asset in increased by 72. So we should :
Cr P&L 32
Cr Revaluation surplus 40Correct?
Thank you in advance Mr Mike!
Agreed
For those reading this, let me explain where Yellow has got these figures from
I assume that we can all arrive at 48 carrying value and now wish to reverse the impairment to get the asset back up towards the 120 revaluation.
But we cannot reverse an impairment beyond an amount that will take the asset back to the position that it would have been in had we not impaired.
If we hadn’t impaired, that asset would have been carried at 100 less 2 years’ depreciation giving us a cv of 80
So the impairment reversal is limited to 32 taking 48 cv up to 80
The remaining 40 is credited to revaluation reserve
Dear Mike,
How come remaining 40 is credited ro revaluation reserve? Then where is the debit side? It can’t be to PPE right? Because asset cannot be revalued to a carrying amount that is higher than its value had the impairment not taken place (which is 80)
So 32 is revesal of impairment loss and asset is now at CV =80.
I would ignore the 40.
Please explain this. Thank you!It’s a strange thing isn’t it! We can only reverse the impairment up to the value that it would have been had we not impaired it in the first place.
Where the reversal takes us above that figure, the excess is going to have to go to a revaluation reserve and we’ll carry the asset at the revalued amount
Ok?
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