What's the difference between asset revaluation and asset impairment

Revaluation will be when the valuation model is adopted Impairment applies when we're using the cost model

Hi Mr Little, What about the first time the asset is revalued/reassessed? And the carrying value is brought down. Does this mean both revaluation and impairment can be applied? Thanks.

No, it's being impaired down to proper valuation and valuation procedures will be applied after that

Thank you sir. May I ask you an Exam question for the diet of Jun 2015? It's the question number 4. The following is the briefing: A plant of carring amount of $248,000 at 1 Apr 2014. The depreciation rate is 12.5% on a reducing balance. The estimated net cash flows for the next three years discounting to the present is $214,600. On 1 Apr 2015, offer to buy the plant is $200,000. The solution is: Carrying amount at 1 Apr 2015: $248,000 - $248,000 * 12.5% = $217,000 The estimated net cash flows discounted to the present value (recoverable amount): $214,6000 We choose the lower of the amount: $214,600 Then we choose the higher of the recoverable amount $214,600 which is the value in use and the fair value less any costs of disposal $200,000, reaching the value of $214,600 as the asset value in the state of financial position at 1 Apr 2015. It seems to me that the first choice is the application of revaluation model, and the second choice is the application of impairment, but why this precedent? Why not the reverse application? And another thing, I feel the question and the presented solution is confusing. The three years net cash flow is discounted to present, which I assume is at 1 Apr 2014, but then the Examiner takes this figure to compare against the carrying amount one year's later at the 1 Apr 2015, and then he choose the lower amount that is the discounted net cash flow $214,600. Isn't that wrong? Thank you.

I'm confused! It looks to me like you've selected $214,600 too early! "We choose the lower of the amount: $214,600" seems to me to be in the answer too early Take the $248,000, depreciate for one year to March 2015 and arrive at carrying value of $217,000 Recoverable amount at March 2015 is higher of $200,000 resale value and $214,600 present value Select $214,600 as the higher of these two Compare $214,600 with carrying value of $217,000 and impair carrying value by $2,400 (Why did you assume that the "net cash flow discounted to present" was as at 1 April, 2014? The depreciation rate is given for you to calculate depreciation for the year ended 31 March, 2015. The offer to buy the plant is at 1 April, 2015. So why do you think the present value of value in use is as at 2014?)

Hi Sir, Now I understand. The order of the selection of $214,600 is provided in the solution from ACCA's site: Is the lower of its carrying amount ($217,000) and recoverable amount ($214,600) at 31 March 2015. Recoverable amount is the higher of value in use ($214,600) and fair value less (any) costs of disposal ($200,000)). Carrying amount = $217,000 (248,000 – (248,000 x 12·5%)) Value in use is based on present values = $214,600 Thus I was confused. As for 3 year net cash flows discounting to current as of 01 Apr 2014, I read that from the question. Below is the net cash flow table: Year to 31 March 2015 120,000-->109,200 Year to 31 March 2016 80,000 -->66,400 Year to 31 March 2017 52,000 -->39,000 If the year to 31 Mar 2015 net cash flow is discounted to $109,200, then the present time must have been 1 Apr 2014, thus my confusion why the examiner uses a value of 1 Apr 2014 to compare with the one carried on 1 Apr 2015 ($217,000). Thanks.

Wow! Yes, that really HAS confused me! A comparison between present value at 2014 and carrying value at 2015 is SA very strange idea! I can't help you, sorry