Reversal of impairment losses
At the beginning of 2009 an entity acquires an asset with a useful life of 10 years for $1,000. The asset generates net cash inflows that are largely independent of the cash inflows of other assets or groups of assets. At the end of 2011, when the carrying amount after depreciation is $700, the entity recognises that there has been an impairment loss of $210. The entity writes the asset down to $490. As the useful life is not affected, the entity commences amortisation at $70 per annum which, if applied in each of the years 2012 – 2018, would amortise the carrying value over the remaining useful life, as follows:
|
Table 1 |
2009 |
2010 |
2011 |
2012 |
2013 |
1014 |
2015 |
2016 |
2017 |
2018 |
|
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|
|
NBV – beginning of the year |
1,000 |
900 |
800 |
490 |
420 |
350 |
280 |
210 |
140 |
70 |
|
Depreciation |
100 |
100 |
100 |
70 |
70 |
70 |
70 |
70 |
70 |
70 |
|
Impairment |
210 |
|||||||||
|
NIIV – end of the year |
900 |
800 |
490 |
420 |
350 |
280 |
210 |
140 |
70 |
|
|
N13V without impairment |
900 |
800 |
700 |
600 |
500 |
400 |
300 |
200 |
100 |
|
At the beginning of 2013, before depreciation for the year, the asset’s carrying value is $420. Thanks to improvements in technology, the entity is able to increase the asset’s VIU to $550 by spending $120 on parts that improve and enhance its performance.
However, this has taken no account of the previous impairment of $210 in 2011 or of the revised VIU at the end of 2013 of $550.Therefore, at the end of 2013, the asset can be written up to the lower of:
- $600, which the net book value of the asset after the additional expenditure, assuming that there had never been any impairment This is the balance brought forward at the beginning of 2013 of $600 (Table 1 bottom row) plus expenditure of $120 less depreciation for the year of (720/6) = $120; and
- $550, which is the VIU.
i.e. it can write the asset’s net book value back up to $550. Therefore, the entity can reverse $100 of the impairment write down and amortise the remaining net book value of the asset of $550 to zero over the remaining five years, 2014-2018, at $110 per annum.
The Standard includes an illustration of the reversal of an impairment loss in the standard’s accompanying section of illustrative examples, in Example 4.
All reversals are to be recognised in the income statement immediately, except for revalued assets which are dealt with below. [IAS 36.119].
If an impairment loss is reversed against an asset, its depreciation or amortisation is adjusted to allocate its revised carrying amount less residual value over its remaining useful life. [IAS 36.121].