Corporate Accounting and Reporting: Reversal of Impairment Loss

This report delves into the principles of corporate accounting and reporting, focusing on the reversal of asset impairment losses. It begins by establishing the importance of accurate asset valuation and the role of AASB 136 in guiding asset impairment processes. The report explains that asset impairment occurs when an asset's carrying value exceeds its recoverable amount, leading to an impairment loss. It then differentiates between the cost and revaluation frameworks for asset impairment, as per AASB 136. Furthermore, the report explores how the impairment losses are recorded in the financial statements under both frameworks. The report emphasizes that the reversal of impairment losses can occur if the recoverable amount of an asset subsequently increases. Finally, the report highlights the internal and external indicators that signal a need to assess for impairment reversal, concluding with a discussion on how both cost and revaluation models handle the reversal process, and the implications for financial reporting. The report provides a detailed analysis of the accounting standards and their practical application.

Running head: CORPORATE ACCOUNTING AND REPORTING
Corporate Accounting and Reporting
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Reversal of an impairment loss for individual asset
There has been an observation that one of the essential principles stresses on the fact
that there is no demand for assets which have increased level of valuation in the financial
report. Therefore, this requires various other ideas and concepts related to the values in
accordance which the value that is undertaken by the asset can be differentiated in order to
observe if there are any additional left. AASB 136 has their Paragraph 1 explaining the fact
that asset impairment explains the processes that have been implemented by each and every
organization in order to make sure that the assets are being treated at their correct amounts,
which does not cross the extent of the amount which can be recoverable (Aasb.gov.au. 2018).
This paragraph even explains that in scenarios when the assets are carried forward over the
value that has been recoverable, and then the amount that is recovered by selling the assets is
lesser than the carried amount of the assets. The assets in such circumstances can be regarded
to be impaired and the standard of AASB needs the organizations to understand the losses
gained from the impairment that is inclusive of the impairment loss time and that of the
declarations which are vital (Rennekamp, Rupar and Seybert 2014).
In case of an asset, which has their carrying value higher than the value that is
recoverable, then the process impairment loss takes place (Ballas, Panagiotou and Tzovas
2015). This is found to be of an increased value of the fair value of the assets minus the cost
of selling and the amount that is under exploitation. Therefore, by taking suggestion of AASB
136, Paragraph 59, if the value of the asset that is recovered is lower than the carrying
amount of the same, then the carrying amount requires to be curtailed in accordance to the
asset value. This sort of curtailing is known as the impairment loss (Lobo et al. 2017). The
mechanism of computing the impairment loss may be variable by looking at the information
that whether the asset is maintained at the extent of cost or even follows the model of
revaluation. In the same paragraph, the impairment losses requires to be realized

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immediately excepting situations when the undertaking of the asset is being made at a value
which can be revaluated and is in compliance to some other standards (Detzen, Wersborg
and Zülch 2015). These accounting standards are helpful in explaining the revolution
framework as it has been done in AASB 116. Hence, the loss of impairment which is
associated any asset that has been re-valued is needed to be regarded as a fall in the
revaluation in accordance to the various other standards.
The two processes by taking help of which the asset impairment can occur are the cost
framework and the revaluation framework (Penner, Kreuze and Langsam 2016). In
accordance to AASB 136 Paragraph 61, in scenarios of the cost framework, when there has
been a recording of the asset that has been impaired with respect to cost, the loss incurred
requires to be identified without any postponements with respect to profits and losses. This
explicitly explains that the loss is needed to be identified as a cost in the disclosure report for
the company that is under consideration.
Paragraph 60 of AASB 136, when the model of revaluation is considered then in case
the impairment is undertaken in cases of plant and machinery and even in equipment at the
re-valued amount, the losses in the impartment requires to be posted similar to the fall in the
revaluation (Dvořák and Poutník 2017). For the intention of replication, the loss of
impairment on the assets that have been re-valued is required to be realized in the income
statement in the initial phase in order to ascertain that it does not go over amount that is
surplus for the same asset. The target can be accomplished by taking help of debiting the
leftover additional account, which thereby can be applicable to the assets that is inclusive of
the liability of tax which is by nature deferred previous to any sorts of balance loss is
regarded as a cost for the income statement.

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It can take place that in certain previous cases the previously documented value of
recoverable for the amount of the asset goes over the carrying value of the same asset. As
cited by Paragraph 110 of the AASB 136, the organization requires observing for some
symbols of whether the loss of impairment earlier from any assets excluding of goodwill
became non-existent or had a fall in the value. Paragraph 111 of AASB 136 explains that
there is a requirement for numerous internal and external symbols for the reversal of the
impairment losses (Aasb.gov.au. 2018). The symbols are inclusive of the substantial rise in
the market value of the assets, decline in the total interest rate in the economy and the market,
potentials for favourable applications for the firm changes that are positive in nature with
respect to the asset utilisation and symbols indicating enhanced performance of the same
economic definitions, opposing to the speculations.
The two kinds of framework namely the cost framework and the revaluation
framework have the ability of undertaking the reversal of the impairment loss. During the
time when the cost model is considered, the reversal cannot be observed to raise the carrying
value of the assets during the value depreciation of the same asset (Brenner, VJeancola and
Watkins 2015). In this respect, it requires to be taken into consideration that the asset that is
concerned is associated to the process of real depreciation. In such scenario, loss of
impairment of the asset can be achieved in the form of earnings in the income statement of
the company that has been considered as cited in Paragraph 119 of AASB 136.
In case of the process of revaluation, if the loss of impairment is considered to be
expenditure and is treated in the income statement, then the reversal can be undertaken by
crediting the amount of earnings. (Aasb.gov.au. 2018) Therefore, during the coming time
periods, there is a requirement for the adjustments with respect to depreciation for the
allocation of the carrying value minus the residual amount in a proficient and systematic way
for the remaining effective future life period.

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Reference List
Aasb.gov.au. 2018. Australian Accounting Standards Board (AASB) - Home. [online]
Available at: http://www.aasb.gov.au/ [Accessed 23 Jan. 2018].
Ballas, A., Panagiotou, V. and Tzovas, C., 2015. Accounting Choices for Tangible Assets: A
Study of Greek Firms. SPOUDAI-Journal of Economics and Business, 64(4), pp.18-38.
Brenner, V.C., Jeancola, M.M. and Watkins, A.L., 2015. Using mini-cases to develop AICPA
core competencies. In Advances in Accounting Education: Teaching and Curriculum
Innovations (pp. 21-44). Emerald Group Publishing Limited.
Detzen, D., Wersborg, T.S.G. and Zülch, H., 2015. Bleak Weather for Sun-Shine AG: A Case
Study of Impairment of Assets. Issues in Accounting Education, 30(2), pp.18-39.
Dvořák, M. and Poutník, L., 2017. The Comparative Analysis of CAS and IPSAS
Requirements on Tangible Fixed Assets. In New Trends in Finance and Accounting (pp. 497-
510). Springer, Cham.
Lobo, G.J., Paugam, L., Zhang, D. and Casta, J.F., 2017. The effect of joint auditor pair
composition on audit quality: Evidence from impairment tests. Contemporary Accounting
Research, 34(1), pp.118-153.
Penner, J.W., Kreuze, J.G. and Langsam, S.A., 2016. INSTRUCTORS'NOTES:
IMPAIRMENT ANALYSIS: COMPARISON OF IMPAIRMENT OF LONG-LIVED
ASSETS BETWEEN US GAAP AND IFRS. Academy of Educational Leadership
Journal, 22(2), p.90.

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Rennekamp, K., Rupar, K.K. and Seybert, N., 2014. Impaired judgment: The effects of asset
impairment reversibility and cognitive dissonance on future investment. The Accounting
Review, 90(2), pp.739-759.