Post impairment review

In this lesson

1. 0:00 Post impairment review and depreciation changes
2. 0:36 Understanding impairment reversal indicators
3. 1:18 Reversing impairments in financial statements
4. 2:29 Maximum revaluation restriction explained
5. 2:55 Worked example: Machine impairment and reversal
6. 5:18 Calculating the reversal limitation
7. 7:41 Key principle: Depreciated historic cost cap

About this lesson

You'll discover when reversals are permitted, how to calculate the maximum reversal amount, and how to treat the reversal in your financial statements, all illustrated through a practical worked example that shows the restrictions placed on revaluation. After an initial impairment loss is recognised, the asset's depreciation or amortisation is recalculated based on the revised carrying amount, and the useful life may also be re-evaluated. However, impaired assets can recover in value. If economic conditions improve or the asset's recoverable amount increases, you may need to reverse part or all of the original impairment loss. The key exception is goodwill—impairment losses on goodwill can never be reversed. The treatment of a reversal depends on where the original loss was recorded. If the impairment was charged to profit or loss, the reversal is credited to profit or loss. If it was recognised in the revaluation surplus, the reversal increases the revaluation surplus through other comprehensive income. Critically, there's a cap on reversals: you cannot revalue an asset to more than its depreciated carrying amount would have been if the impairment had never occurred. This lesson walks through a detailed example involving a machine that is impaired, then recovers in value, showing exactly how to calculate the maximum allowable reversal and why the recoverable amount alone doesn't determine the reversal figure.

Duration: 8m