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So I’m looking at impairment and revaluation of assets and am wondering about the accounting treatment. My understanding is that a revaluation and impairment can both be caused by a decline in the market value of the asset.
So if I have an asset that was previously revalued to a higher amount, and it is then revalued to a lower amount, I report the loss to the extent of the gain in OCI and then the excess to the SOPL.
If the same asset was revalued up, and then impaired, do I do the same thing? If the reason for impairment or revaluation solely based on market value is the process the same? Thanks
Hi,
You would take any increase to profit or loss first, as this is where any excess impairment would have been taken, and then any further increases taken to OCI.
Thanks
Oh OK thanks. Also the standard says we are not allowed carry an item at higher of it’s recoverable amount, either value in use or fair value less costs to sell. Does this mean that if we revalue an item we need to exclude the costs to sell from the fair value once we revalue it?
So say if we revalue an item from 500,000 to 1000,000 and the cost to sell are 50,000 is the fair value after revaluation in the accounts then 950,000? Thanks
Dear Sir
I have followed other threads revaluation and impairment but I am still unclear on distinction between revaluation downwards, impairment and subsequent reversal.
1. Does downward revaluation necessarily constitute impairment seeing the only circumstances that would warrant revaluation down would also warrant impairment, or am i wrong??2.The rule that an impairment reversal cannot result in higher carrying value than it would have been had impairment not taken place does not apply to assets held using revaluation model??
@millish23 said:
Oh OK thanks. Also the standard says we are not allowed carry an item at higher of it’s recoverable amount, either value in use or fair value less costs to sell. Does this mean that if we revalue an item we need to exclude the costs to sell from the fair value once we revalue it?So say if we revalue an item from 500,000 to 1000,000 and the cost to sell are 50,000 is the fair value after revaluation in the accounts then 950,000? Thanks
Why would we be incorporating the costs to sell when we are revaluing an asset? We revalue it to its fair value.
Thanks
@mackawara said:
Dear SirI have followed other threads revaluation and impairment but I am still unclear on distinction between revaluation downwards, impairment and subsequent reversal.
1. Does downward revaluation necessarily constitute impairment seeing the only circumstances that would warrant revaluation down would also warrant impairment, or am i wrong??2.The rule that an impairment reversal cannot result in higher carrying value than it would have been had impairment not taken place does not apply to assets held using revaluation model??
1. A downward revaluation is an impairment.
2. No, the rule applies to all assets whether held under the revaluation model or not.
Thanks
The second paragraph is important.
———
IAS 36.60
An impairment loss shall be recognised immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another Standard (for example, in accordance with the revaluation model in IAS 16).Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other Standard.
———This means that if the gross carrying amount of a revalued asset drops below its original cost you treat it as a Revaluation Deficit (decrease of Cost) and not an Impairment (increase of Acc Depr).
It does mean that IAS 16.31 (below) unnecessarily mentions impairment. Perhaps causing confusion?
IAS 16.31
After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.@staal said:
The second paragraph is important.———
IAS 36.60
An impairment loss shall be recognised immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another Standard (for example, in accordance with the revaluation model in IAS 16).Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other Standard.
———This means that if the gross carrying amount of a revalued asset drops below its original cost you treat it as a Revaluation Deficit (decrease of Cost) and not an Impairment (increase of Acc Depr).
It does mean that IAS 16.31 (below) unnecessarily mentions impairment. Perhaps causing confusion?
IAS 16.31
After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.Hi,
Is there a question here that I’m meant to answer?
Thanks
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