- This topic has 15 replies, 5 voices, and was last updated 4 years ago by
.
- Posts
Dear Mr Mike,
I quite confuse with revaluation and impairment review. Here are my problems:
1. For example, an asset has carrying value = 500 (10 year life) and then be revalued down to 400. $100 down is treated to Profit/Loss as this asset has no previous balance in revaluation surplus. At the end of period, net depreciated value = 360, then be revalued up to 470. So the $110 up in value should be treated as income (as a reversal of $100 loss recognized) or revaluation surplus or part to income (100), part to surplus (10)?
2. Similar to above example but the carrying value after annual revaluation is still 500 but asset is impaired (due to sudden changes in use) and written down value to 400 (still no previous balance of revaluation surplus), net depreciated value = 360, net depre value as if impairment had not happened = 450. So what is the treatment IF this asset is revalued to 470. It is written up to 450 or 470? And the increased value would be treated as income or revaluation surplus?
Tks you in advance!
1 – the reversal (why would you immediately impair an asset that you’ve just bought for 500?) of the 100 impairment cannot all go through statement of profit or loss. We can only reverse to a value that the asset would have been if we hadn’t impaired it in the first place.
In your example, we can reverse the impairment back up to 450, ie a reversal of 90.
The other 20, if you insist on valuing this (very strange) asset will have to be credited to Revaluation Reserve
I’ve just answered your number 2 as well
Tks you for your prompt reply,
Firstly, the $90 reversal you said above is credited as an income in Profit/Loss?
Secondly, I am somehow not very clear between a revaluation down and an impairment. If an asset is revalued down, could we treat this as an impairment? What I mean is:
+ In example 1, we revalued annually as we apply revaluation model, NO IMPAIRMENT arose (because impairment review accounts both for the Value in Use and Market Value (Net Selling Price), but revaluation only considers market value, so if Value in Use > Market Value and also > current carrying value then we have no impairment here). The value is down due to market condition (and NO, the asset is not recently purchased, 500 is the carrying value at previous year end after some years of using).
+ So, if in the end of this year, we revalue and the value goes up, why it is treated as the same as a reversal of impairment when no impairment had happened, it is just a revaluation practice! And then, if this is not a reversal of impairment, should we still separate $110 increasing to 2 parts: $90 up to 450 as no revaluation down happened and $20 to surplus.
Sorry for a lot of text, it is quite complicated now in my head.
Reversal of $90 ? Yes, goes to statement of profit or loss (because that’s where the impairment went to and the impairment went there because there’s no amount in revaluation reserve for this asset)
If, in the process of our annual valuation exercise, it appears that one of our assets needs a reduction in its value, is that not saying in different words that that asset has impairment indicators. And, if so, an impairment exercise should be carried out
I don’t see any difference between an impairment and a downwards revaluation where the valuation model is being used. Where the cost model is being used, then an impairment is as a result of (hopefully) unusual circumstances and revaluations are not relevant
The wording in your original post suggested that it was a new asset (“ten year life” rather than “ten year REMAINING useful life” – but, no problem)
If cost model used, and asset has been impaired in the past, any reversal simply undoes the original impairment entries but restricted to the level that the asset would have been without the impairment. Beyond that limitation, if the company wishes to revalue, then it can but all assets in that class now face the revaluation exercise ie the company is abandoning the cost model and adopting the valuation model
If valuation model is used, changes in value go through revaluation reserve.
Is that enough?
What happens if we are to reverse an impairment for previously revalued asset. For example cost of the asset (UEL 5 years) was 500 at the beginning of year 1. At the and of year 2 asset was revalued to 600. End of year 2 we will book
Dr Accumulated depreciation 100
Cr Cost 100
Dr Cost 200
Cr Revaluation reserve 200End of year 3 there is a downward revaluation to the value of 150. We will book:
Dr Accumulated depreciation 200
Cr Cost 200
Dr Revaluation reserve 200
Dr P&L 50
Cr Cost 250End of year 4 the value of the asset is revalued again to 375. What will we book?
Dr Accumulated depreciation 75
Cr Cost 75
Dr Cost 300 or (275) or (175)
Cr Revaluation reserve 300 or(275) or (275)IAS 36 says: The increased carrying amount due to reversal should not be more then the depreciated historical cost would have been if the impairment had not been recognized. Reversal of impairment loss is recognized in the P&L unless it relates to a revalued asset.
Assume the asset cost 500 on 1 January, 2011, estimated useful life 5 years
1. 1.11 Cost 500
31.12.11 Depn 100
31.12.11 NBV 400
31.12.12 Depn 100
31.12.12 NBV 300
31.12.12 Reval 300 (Dr TNCA 100, Dr Depn 200, Cr Reval 300)
31.12.12 NBV 600
31.12.13 Depn 200
31.12.13 NBV 400
31.12.13 Impair 250 (Dr Reval 250 Cr TNCA 250)
31.12.13 NBV 150
31.12.14 Depn 75
31.12.14 NBV 75
31.12.14 Reval 125 (Dr Depn 125, Cr Reval 125)
31.12.14 NBV 200That’s how I see it
Ask if you can’t follow that logic
Thank you for a quick reply!
I can follow your calculation- the NBV at the end of year 4 cannot be > than the depreciated amount would have been if no impairment was recognized.
Just to clarify, my question here is: the standard says that in case of reversal of impairment, the increased carrying amount cannot be > than what depreciated historical cost would have been if the impairment has not been recognized.
In your calculation of NBV at the end of year 4 you used the revalued amount of 600 and not the historical cost of 500 – why?I want to know how to reverse an impairment of revalued asset that went through P&L? I will change the value at the end of year 3: end of year 3 there is a downward revaluation to the value of 50.
1. 1.11 Cost 500
31.12.11 Depn 100
31.12.11 NBV 400
31.12.12 Depn 100
31.12.12 NBV 300
31.12.12 Reval 300 (Dr TNCA 100, Dr Depn 200, Cr Reval 300)
31.12.12 NBV 600
31.12.13 Depn 200
31.12.13 NBV 400
31.12.13 Impair 350 (Dr Reval 300 Dr P&L 50 Cr TNCA 550 Dr Depn 200)
31.12.13 NBV 50
31.12.14 Depn 25
31.12.14 NBV 25
31.12.14 Reval 175 (Dr TNCA 150,Dr Depn 25, Cr Reval 175 OR Cr Reval 150 and Cr P&L 50)
31.12.14 NBV 200I have applied your logic that the NVB should be 200 at the end of year 4.
My question is how to reverse an impairment here – partly through P&L and partly through RR or all goes to RR.IAS 36 says that reversal of impairment loss for a revalued asset goes to revaluation reserve and not P&L. Just want to confirm that this applies to the example above.
Thanks a lot
“… cannot be > than what depreciated historical cost would have been if the impairment has not been recognized.”
“In your calculation of NBV at the end of year 4 you used the revalued amount of 600 and not the historical cost of 500 – why?”
I don’t see the word “revaluation” in that first extract at the top of this post
“31.12.14 Reval 175 (Dr TNCA 150,Dr Depn 25, Cr Reval 175 OR Cr Reval 150 and Cr P&L 50)” Your alternative doesn’t balance – I think you mean “Cr Reval 125 and Cr P&L 50)”
I think that works … but, let’s be honest! It’s a stupid scenario!
How can a 500 asset be depreciated down to 300, be revalued by 300 after 2 years and then, after just 1 more year be impaired from 400 down by 87.5% to 50
And then, after 1 more year, be revalued from 25 up to 200
Come on, get real!
I am aware it is a stupid scenario, my intention was not to create a real life scenario, but rather a very simple one which can help clarify accounting treatments which are not very clear.
There is no need for an example at all its just simpler if there are some numbers to crunch.
So, I would appreciate and be grateful if you could answer me the two questions below:
1. When an asset is first revalued, then impaired and then revalued again – is the final carrying amount limited to what the depreciated historical cost would have been if the first revaluation and impairment have not been booked? Or limited to what the depreciated historical cost would have been if the impairment have not been booked? In your solution you used revalued (first revaluation) amount rather than historical cost. Why? Any reference to any document?
2. When an asset is first revalued, then impaired with part of impairment decreasing a revaluation surplus to nil and other part booked in P&L, and then revalued again – do you reverse impairment party in the P&L (limited to the previous Dr impairment) and partly in revaluation reserve or do you book the total amount in revaluation reserve? Why? Any reference to any document?
Thanks
“In your solution you used revalued (first revaluation) amount rather than historical cost. Why? Any reference to any document?”
I see nothing in the rules about reversals of impairment that suggest I have to go right back to historic cost
“… limited to an amount that would have obtained if the impairment hadn’t been recognised”
“do you reverse impairment party in the P&L (limited to the previous Dr impairment”
Yes, you undo the impairment in the reverse sequence that was adopted when the asset was being impaired
These two sections of IAS 36 would say otherwise unless there is some other clarification or example:
The increased carrying amount due to reversal should not be more than what the depreciated historical cost would have been if the impairment had not been recognized. [IAS 36.117]
Reversal of an impairment loss is recognized in the profit or loss unless it relates to a revalued asset [IAS 36.119]
Thanks!
“These two sections of IAS 36 would say otherwise unless there is some other clarification or example:”
I don’t think so!
You have asked my opinion
I have given you my opinion
I’m not going to change my mind 🙂
Perfect! It was not my intention to change your mind, just to challenge it!:)
Thanks again
i. In case of downward revaluation. we first Dr. Remaning surplus balance and record the difference in Profit or loss.
ii. If subsequently, the asset results in upward revaluation, we first reverse the loss recorded in profit and loss earlier and then record the difference in OCI Revaluation surplus.
My question is, what is the amount of loss which has to be reversed in point ii.
Example:
i. Surplus Dr.
P&L Dr.
PPE Cr.ii. PPE Dr.
Surplus Cr.
P&L Cr. (This figure should be same as we have recorded in i. ? )
- You must be logged in to reply to this topic.