Page 55 - Microsoft Word - 00 IWB ACCA F7.docx

Impairment of assets

Reversal of impairment

2.1 Changes in recoverable amount

Sometimes the events anticipated to cause impairment of an asset turn out better
than predicted. If this happens the recoverable amount is recalculated and the
previous impairment reversed.

 The reversal is recognised immediately in the statement of profit or loss. If the
previous impairment was charged against the revaluation surplus, then the
reversal is recognised as other comprehensive income and credited to the
revaluation surplus.

 The reversal must not increase the value of the asset above its depreciated
original cost i.e. the value that it would have had if no impairment had been
recorded.

Example 2

Impairment reversal

On 1 January 20X3 a company purchased a machine at a cost of $24,000.
The machine is to be depreciated on a straight-line basis over its estimated
useful life of eight years with nil residual value.

At 31 December 20X4 the machine is impaired by $4,500 with no change in its
estimated useful life or residual value.

At 31 December 20X6 the conditions which caused the impairment have
reversed and the recoverable amount of the machine is $16,000.

How will this be reflected within the financial statements?

49