Reversal of an Impairment Loss

1. Paragraphs 97 to 103 set out the requirements for reversing an impairment loss recognised for an asset or a cash-generating unit in prior years. These requirements use the term 'an asset' but apply equally to an individual asset or a cash-generating unit. Additional requirements are set out for an individual asset in paragraphs 104 to 108. for a cash generating unit in paragraphs 109 to 110 and for goodwill in paragraphs 111 to 114.

2. An enterprise should assess at each balance sheet date whether there is any indication that an impairment loss recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the enterprise should estimate the recoverable amount of that asset.

3. In assessing whether there is any indication that an impairment loss recognised for an asset in prior years may no longer exist or may have decreased, an enterprise should consider, as a minimum, the following indications:

   External sources of information

   1. the asset's market value has increased significantly during the period;

   2. significant changes with a favourable effect on the enterprise have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the enterprise operates or in the market to which the asset is dedicated;

   3. market interest rates or other market rates of return on investments have decreased during the period, and those decreases are likely to affect the discount rate used in calculating the asset's value in use and increase the asset's recoverable amount materially;

      Internal sources of information

   4. significant changes with a favourable effect on the enterprise have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, the asset is used or is expected to be used. These changes include capital expenditure that has been incurred during the period to improve or enhance an asset in excess of its originally assessed standard of performance or a commitment to discontinue or restructure the operation to which the asset belongs; and

   5. evidence is available from internal reporting that indicates that the economic performance of the asset is, or will be, better than expected.

4. Indications of a potential decrease in an impairment loss in paragraph 98 mainly mirror the indications of a potential impairment loss in paragraph 10. The concept of materiality applies in identifying whether an impairment loss recognised for an asset in prior years may need to be reversed and the recoverable amount of the asset determined.

5. If there is an indication that an impairment loss recognised for an asset may no longer exist or may have decreased, this may indicate that the remaining useful life, the depreciation (amortisation) method or the residual value may need to be reviewed and adjusted in accordance with the Financial Reporting Standard applicable to the asset, even if no impairment loss is reversed for the asset.

6. An impairment loss recognised for an asset in prior years should be reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset should be increased to its recoverable amount. That increase is a reversal of an impairment loss.

7. A reversal of an impairment loss reflects an increase in the estimated service potential of an asset, either from use or sale, since the date when an enterprise last recognised an impairment loss for that asset. An enterprise is required to identify the change in estimates that causes the increase in estimated service potential. Examples of changes in estimates include:

   1. a change in the basis for recoverable amount (i.e., whether recoverable amount is based on net selling price or value in use);

   2. if recoverable amount was based on value in use: a change in the amount or timing of estimated future cash flows or in the discount rate; or

   3. if recoverable amount was based on net selling price: a change in estimate of the components of net selling price.

8. An asset's value in use may become greater than the asset's carrying amount simply because the present value of future cash inflows increases as they become closer. However, the service potential of the asset has not increased. Therefore, an impairment loss is not reversed just because of the passage of time (sometimes called the 'unwinding' of the discount), even if the recoverable amount of the asset becomes higher than its carrying amount.

Reversal of an Impairment Loss for an Individual Asset

1. The increased carrying amount of an asset due to a reversal of an impairment loss should not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years.

2. Any increase in the carrying amount of an asset above the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years is a revaluation. In accounting for such a revaluation, an enterprise applies the Financial Reporting Standard applicable to the asset.

3. A reversal of an impairment loss for an asset should be recognised as income immediately in the income statement, unless the asset is carried at revalued amount under another Financial Reporting Standard. Any reversal of an impairment loss on a revalued asset should be treated as a revaluation increase under that other Financial Reporting Standard.

4. A reversal of an impairment loss on a revalued asset is credited directly to equity under the heading revaluation surplus. However, to the extent that an impairment loss on the same revalued asset was previously recognised as an expense in the income statement, a reversal of that impairment loss is recognised as income in the income statement.

5. After a reversal of an impairment loss is recognised, the depreciation (amortisation) charge for the asset should be adjusted in future periods to allocate the asset's revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.

   Reversal of an Impairment Loss for a Cash-Generating Unit

6. A reversal of an impairment loss for a cash-generating unit should be allocated to increase the carrying amount of the assets of the unit in the following order:

   1. first, assets other than goodwill on a pro-rata basis based on the carrying amount of each asset in the unit; and

   2. then, to goodwill allocated to the cash-generating unit (if any),if the requirements in paragraph 111 are met.

   These increases in carrying amounts should be treated as reversals of impairment losses for individual assets and recognised in accordance with paragraph 106.

7. In allocating a reversal of an impairment loss for a cash-generating unit under paragraph 109, the carrying amount of an asset should not be increased above the lower of:

   1. its recoverable amount (if determinable); and

   2. the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years.

   The amount of the reversal of the impairment loss that would otherwise have been allocated to the asset should be allocated to the other assets of the unit on a pro-rata basis.

   Reversal of an Impairment Loss for Goodwill

8. As an exception to the requirement in paragraph 101, an impairment loss recognised for goodwill should not be reversed in a subsequent period unless:

   1. the impairment loss was caused by a specific external event of an exceptional nature that is not expected to recur; and

   2. subsequent external events have occurred that reverse the effect of that event.

9. Generally accepted accounting principles prohibit the recognition of internally generated goodwill. Any subsequent increase in the recoverable amount of goodwill is likely to be an increase in internally generated goodwill, unless the increase relates clearly to the reversal of the effect of a specific external event of an exceptional nature.

10. This Standard does not permit an impairment loss to be reversed for goodwill because of a change in estimates (for example, a change in the discount rate or in the amount and timing of future cash flows of the cash-generating unit to which goodwill relates).

11. A specific external event is an event that is outside of the control of the enterprise. Examples of external events of an exceptional nature include new regulations that significantly curtail the operating activities, or decrease the profitability, of the business to which the goodwill relates.

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