Corporate Accounting and Reporting: Impairment Loss Reversal Analysis

This report provides a descriptive evaluation of the reversal of impairment losses for individual assets, focusing on Australian accounting standards, particularly AASB 136. It defines impairment loss as the excess of an asset's carrying amount over its fair value and explains the circumstances under which such losses can be reversed. The report highlights that impairment losses can be reversed for all assets except goodwill, provided there's a change in assumptions used to determine the recoverable amount. It details the accounting adjustments required, including the increase in the asset's carrying amount up to its recoverable amount, and notes that the increase cannot exceed the depreciated past cost. The report also addresses the recognition of impairment loss reversal in the income statement, the treatment of revalued assets, and the prohibition of reversing impairment losses for assets with long useful lives, excluding goodwill. Furthermore, it covers the allocation of impairment losses, the rate of discounting, and the necessary disclosures. The report concludes by emphasizing adjustments to depreciation in future periods to reflect the revised carrying amount.

Corporate accounting and reporting

Reversal of an impairment loss for individual asset
An impairment loss can be defined as the excess of the carrying amount of asset in
comparison to its fair value. However; this impairment loss is required to be reversed for
improvement in the estimation of the recoverable amount (Komissarov, Kastantin and
Rick, 2014). The present study is based on a descriptive evaluation of reversal of an
impairment loss for the individual asset by considering provisions Australian accounting
standards.
AASB 136 has outlined the circumstances wherein a corporate can reverse an
impairment loss. In accordance with this standard; impairment loss of all assets can be
reversed except goodwill. Some assets are covered under standards, and these are
usually those financial assets addressing with other standards, for instances, assets
dealt in accordance with IAS 36 (Gordon and Hsu, 2017). An impairment loss might be
reversed only if there a change in the assumptions applicable to identify the recoverable
amount of assets during the last recognizing of impairment loss. In this situation, asset’s
carrying amount must be amplified to its recoverable amount. Further, this increase will
reverse an impairment loss with the appropriate accounting adjustments.
On the other hand, the rise in the asset’s carrying value can merely be based on the
depreciated past cost and that would have been if the impairment had not occurred
(Andersson and Wenzel, 2014). Impairment loss reversal is instantly recognized in the
income statement until the financial asset is carried at its revalued amount, wherein the
reversal will be considered an increase in revaluation (Gordon and Hsu, 2016). An
impairment loss has been realized in previous periods for financial assets not including
goodwill must be reversed, if a change is noticed in the estimated to identify the
recoverable amount of asset.
In accordance with the AASB, the reverse of past recognized impairment loss is banned
for long useful lives of assets, inclusive of definite-lived intangible assets (Rennekamp,
Rupar and Seybert, 2014). Reversal of impairment loss is never done for goodwill. For
the other financial assets, when the situations that lead the impairment loss resolved in
a favourable manner, reversal of the impairment loss is made immediately in P&L. On

reversal, the carrying amount of asset take a rise, but not higher than the actual amount
without the previous impairment loss.
Any of the reduction made in the carrying amount of an individual asset shall be treated
as an impaired loss (Hashim, O'Hanlon and Li, 2015). Further, the individual asset’s
carrying amount shall not be decreased beneath the highest cost to sell fair value, its
useful value and zero (Barker and Penman, 2016). In case where this rule is applicable
then the allocation of impairment loss to an individual asset will be done on the basis of
pro-rata to the other financial assets of the company.
For the impairment of individual assets, the rate of discounting is the rate on which the
enterprise is required to pay interest in a market transaction to lend money or to
purchase any specified financial assets (Hashim, O'Hanlon and Li, 2015). If a company
is able to recognize or reverse the impairment losses at the date of transition, then the
disclosures needed are similar to those that an enterprise would have made it
documented for those losses of impairment or its reversals in the beginning period
regarding the date of transition to AASB (Gordon and Hsu, 2016).
The increased carrying amount of an individual asset being caused by a reversal of
impairment loss should not surpass the same amount that would have been identified
and had no recognizing of an impairment loss for the previous years. Increase in the
carrying amount of an individual asset over the carrying amount that will be identified
shall have no impairment loss been realized for the individual asset in the previous year
in terms of revaluation (Penner, Kreuze and Langsam, 2016). An impairment loss
reversal for an individual asset other than goodwill must be instantly recognized in the
profit or loss unless the financial asset is carried at an amount of revaluing under the
IFRS.
A reversal of impaired loss on revalue-asset is acknowledged in other inclusive income
and further increases the revaluation of a specific asset. Although, it is limited to the
extent that an impairment loss on the same assets that was prior recognized in gain or
loss (Dvořák and Poutník, 2017). After recognizing the reversal of an impaired loss, the
new depreciation charged for the assets should be amended in future times to allocate

the revised carrying amount of asset, while deducting is residual value systematically on
its remaining life of use.
An entity can reverse an impairment loss merely if there is a change in estimates made
in use to determine the recoverable amount of asset. In short, an entity is not able to
reverse and impairment loss because of the time passage or slackening the discount
(Persellin, Shaub and Wilkins, 2014). It is essential to recognize the reversal loss of an
impaired loss in the profit and loss until it regards to the revalued amount of asset.
Hence, the increased amount of carrying the asset due to the reversal shall not be
higher than the depreciated past cost. Lastly, adjustments must be made into
depreciation for near future to state the revised carrying amount of an individual asset
(Hashim, O'Hanlon and Li, 2015).
In accordance with the present study; the increase carrying amount of asset except
goodwill can be considered for reversal of impairment loss. However; concerned
reversal value must not exceed than carrying amount net of depreciation or
amortisation. Further AASB 136 states that in case of reversal of impairment loss;
depreciation will be adjusted from revised carrying value less residual value. Accounting
of this transaction is done by in other inclusive income and further increases the
revaluation of a specific asset.

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