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IAS 36 Impairment | Reversal of Impairment | Learn Allocation and Reversal of Impairment Losses — Transcript

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0:00now let's do this topic which I say
0:04reversal of impairment and how much of
0:07the impairment can be reversed
0:09how much can be reversed this is
0:11actually what they want to ask you how
0:14much you can reverse
0:16so let's suppose that we create an
0:18example
0:21and asset
0:25was purchased
0:29on zero one zero one two thousand
0:34n
0:35for
0:40one million dollar
0:47life was 10 years
0:50life was 10 years I have not given you
0:53any residual value if residual value is
0:56not given you suppose it is zero and I
0:59have not given depreciation method as
1:01well if deposition method is not given
1:03you should be charging read the straight
1:06line method so we say that what will
1:08happen that on 0 1 0 1
1:122010
1:17the cost of the asset was 1 million
1:21and life is 10 years okay so your
1:26depreciation will go as
1:301 million divided by 10 100 000 you are
1:34charging depreciation per year
1:37and then what they will tell you in this
1:39situation
1:40they tell you that
1:45on zero one zero one
1:48two thousand
1:50thirteen
1:55the asset had
1:58recoverable amount
2:01of
2:03450 000 let's call like this
2:07450 000 so we need to see that what
2:12happened until 450 000 and how much is
2:15the impairment now I can calculate from
2:18here that if I say that 2010 I purchased
2:212010 11 12 and 12 have passed
2:26okay three years so let me make it you
2:29know
2:30um 550 000.
2:32so
2:34three years have passed so 2010 2011
2:382012. three years I've passed three
2:41hundred thousand depreciation we have
2:42charged so we can say that
2:45on zero one zero one twenty thirteen
2:49the carrying amount of the asset was
2:54seven hundred thousand because three
2:56year depreciation you have charged and
2:59like hundred thousand hundred thousand
3:00hundred thousand so carrying amount is
3:02six hundred thousand recoverable amount
3:04is five hundred and fifty thousand
3:07now there is definitely an impairment
3:10loss of 150 000 which is happening
3:13so this is your impairment loss here
3:17and you must record it you would say
3:19that and there is no evaluation Surplus
3:21so you say debit p l
3:24and credit non-current asset and you
3:27charge it 150 000 here and 150 000 here
3:35so on first of January 2013
3:39we made
3:40an impairment now you should remember
3:43and let me write it down here in some
3:46bold letters that
3:49whenever
3:51so that you don't forget whenever
3:52impairment
3:55or
3:56revaluation happens
3:59new depreciation
4:06amount should be calculated always
4:09remember never forget
4:11whenever you increase the value of the
4:14asset or you decrease the value of the
4:16asset you must find out you must find
4:19out a new depreciation amount okay
4:22because uh if the depreciation if the
4:26asset value has changed depreciation
4:28will also change so in our case what we
4:31say now that here the asset has now we
4:35reduced so on 0 1 0 1 2003
4:40asset value we bring down to
4:43five hundred and fifty thousand because
4:46we impaired it
4:48and the life now is seven years
4:52because three years have passed and
4:54seven years are there so I would say
4:56that the new depreciation is actually
4:59now 550
5:01000 divided by seven
5:03so 78 571 from now onward we will be
5:07charging 78
5:09571 as our as our depreciation
5:14previously our depreciation was hundred
5:16thousand after impairment your
5:19depreciation will be 78 571.
5:221 so you moved on
5:24then what happened that on 0 1 0 1
5:292015 like two years past 2013 2014 two
5:34years passed
5:36so you say that on zero one zero one two
5:39zero five
5:42the asset
5:48recoverable amount
5:50is 560 000.
5:54the asset goes up
5:57asset goes up
5:59now the question is that previously you
6:02have reversed the impairment amount I'm
6:05sorry you have charged the impairment
6:07this is pnm and this is actually your
6:10impairment loss okay
6:14so you charged an impairment loss of 150
6:18000. now asset has gone up again and we
6:22need to reverse the impairment I can
6:24show you the situation this was like
6:27this and now it is going up now the my
6:31question is that how much of how much of
6:34impairment can I reverse okay let me
6:37show you the numbers in details so on 0
6:401 0 1
6:422013 and by the way this is 2013.
6:46I'll show you the detailed calculation
6:48so that you never forget you already
6:50have brought down your carrying amount
6:52to
6:53550 000.
6:55and your depreciation for 2013 was this
7:0178 571 so it means that end of the year
7:05the value the book value was you know uh
7:10471 429
7:13then what will happen that this is 2013
7:16then you must charge depreciation for
7:192014 also the depreciation for 2014
7:23again the same number
7:25and then you make this one and this is
7:28actually the value coming up as
7:32the value on
7:3431st December 2014 and actually you can
7:39call it zero one zero one twenty fifteen
7:42it's the same thing okay you can call it
7:4431st December 2014 or you call it 21st
7:48January 2015 it's the same thing so this
7:52is the value of the asset in the book
7:55okay I mean you were depreciating with
7:58100 you brought it impaired and then you
8:01said that from this date the asset will
8:04be 550
8:06000 and two years passed because the
8:08reversal of impairment time comes after
8:10two years on first January 2015. so you
8:13should see that what was the situation
8:15on 1st January 2015. the situation on
8:181st January 2015 is that I
8:22charged two years depreciation
8:25I charge two-year depreciation first
8:28year you charge depreciation 78 second
8:31year you charge depreciation since 78
8:33and in your books it is 392. and on this
8:37situation in Market it is 560. this is
8:41what we said that the market value goes
8:43to 560 000. so apparently it looks like
8:48apparently it looks like that the asset
8:51there is an increase in the value of
8:52asset by 167
8:55000 this is what it looks like that
8:57asset has gone up because when I started
9:00charging this depreciation my book value
9:03would have been 392 857 Market is 560.
9:08the difference between these two it
9:10looks like the increase in the value can
9:13I take this increase or yes or no this
9:16is the question now what you should be
9:18saying if the value has increased so so
9:22impairment happened before now there is
9:24an increase now there is an upward
9:25movement you know like it was like this
9:28one million you suddenly dropped it you
9:30brought it to a 550 or whatever and then
9:33you use further depreciated it it became
9:36392.
9:39it you started with 1 million
9:42you drop it down to 550.
9:45then now it is 392 and now it goes up it
9:48goes up to 560. so this is the increase
9:52so
9:54at the end of 2015 after five years have
9:58passed 2010 I mean beginning of 215
10:01sorry 2010 11 12 13 14 5 years passed
10:05the asset in the books is 392. asset in
10:08the market has increased in value so it
10:11looks like that this is an upward
10:13increase in the value you call it
10:14reversal of impairment
10:17you know listen if you have some asset
10:20and its price go its value goes up you
10:22call it revaluation because there was no
10:25impairment but if you have an asset
10:27which you brought down which you
10:29impaired in past and now it goes up you
10:31call it reversal of impairment so
10:33reversal of impairment is happening
10:37apparently it looks like that the value
10:39of the asset has gone up by 167 so it is
10:43possible that it comes to your mind that
10:46I increase the asset with 167.
10:49because the value has gone up with 167
10:52the you know Book value is 392 Market is
10:56560. let's make it so can we say it uh
11:00again on impairment no reversal of
11:02impairment no
11:05no so the question is that what you
11:08should think always when you started
11:12it was 1 million let's suppose for a
11:15while that this impairment has or this
11:18impairment or all this story has not
11:20happened it had not happened
11:22what you were doing you were charging
11:24depreciation of 100 000 according to
11:27your original plan you were charging
11:29hundred thousand dollar depreciation how
11:31many years have passed five years have
11:33passed 2010 11 12 13 and 14 only 5 years
11:3915 is just beginning so five year five
11:43hundred thousand
11:46and
11:47the book value would have been five
11:49hundred thousand
11:51we say that imagine
11:53that there has been no impairment I'm
11:56sorry there has been no impairment in
11:58past if I had kept the asset at my
12:02original plan without any these
12:04impairment things it would have been 500
12:07000 and how much it is now now it is
12:10392. so you can only take it from here
12:14you can only take this number to this
12:16number
12:17you cannot come to this number okay 560
12:21you cannot take you cannot take 560. you
12:24will only take it up till this amount so
12:27what you say that your reversal of
12:29impairment amount will be 500 000.
12:32minus 392 000. 107143
12:39debit non-current asset
12:41credit profit and loss straight
12:44with one zero seven one four three this
12:48is called reversal of impairment you
12:50should calculate the book value of the
12:53asset you should calculate the book
12:55value of the asset you should calculate
12:58the amount of the asset in the absence
13:00of any impairment
13:02that let's suppose that this impairment
13:04had not happened let's suppose for a
13:06while how much my asset would have been
13:09you cannot take it more than that okay I
13:12mean if there had been no impairment
13:13asset would have been 500 000 so if I
13:16make it five if I reverse 107. not 167.
13:22you cannot reverse 167. you can only
13:24reverse 107. because after reversing 107
13:28it comes to the point where there has
13:31been no impairment if I just dab it
13:34non-current asset with 107 it will
13:36become 500 000 and 500 000 links no
13:40impairment I am going to the same plan
13:42so that is called reversal of impairment
13:46please but you said that we originally
13:50impaired 150 and now we are only
13:53reversing one zero seven so you think
13:56that it is not fully reversed no my
13:59friend it is fully reversed
14:01because listen when you said that your
14:04asset was originally one million and in
14:07the absence of any impairment
14:13money
14:18in the absence of any impairment in five
14:21years you would have charged only 500
14:24000 depreciation according to your
14:26original plan so your asset would have
14:28been 500 000 you say I don't need
14:31impairment okay I just don't want I just
14:34want to forget about impairment if you
14:36want to forget about impairment what
14:38should have been your balance sheet
14:40value
14:41let's suppose that I just don't want
14:43impairment
14:45so your asset would have been 500 000.
14:48so I'm just bringing it by five hundred
14:50thousand when you charge 107 it becomes
14:53500 000. if you take it to 560
14:57if you take it to 560 you are actually
15:00doing some revaluation
15:02because now you are making this 500 000
15:06asset on the balance sheet you are
15:07taking it to 560. so actually if you if
15:11you make this full 167 it looks like
15:15that you are charging revaluation like
15:17you are increasing the value of the
15:19asset
15:20when I am reversing the impairment my
15:23purpose is not to increase the value of
15:25asset my purpose is to take away the
15:29effect of impairment
15:31listen I'm I'm repeating it again
15:33reversal of impairment my aim is not to
15:37increase the value of asset my aim is to
15:41bring back the asset to its original
15:43condition
15:45what it would have been without
15:47impairment so by doing one zero seven I
15:51bring it to 500 000 which it would have
15:54been without any impairment
15:57I don't want to make it to 560. because
16:01if I take it to 560 I'm charging 60 000
16:04of revaluation and this is not my
16:06objective I'm not increasing the asset I
16:09just say give me my asset at 500 000
16:12that's all
16:13if there had been no yes sir so we have
16:16to follow two assumptions right one with
16:18the impairment and one without the
16:21impairment yeah of course and that's why
16:23I put the two numbers
16:27you just have to see that when you did
16:29impairment you came to this point 392.
16:32if there had been no impairment let's
16:34suppose no impairment what the asset
16:36value would have been only the
16:39difference of this will be reversal
16:43because our objective is our objective
16:46is to take the asset back to the
16:49original position where it should have
16:51been it should have been at 500.
16:54let there be no understood it should
16:56have been 500 so let's take it to 500.
16:59anything over and above if you want to
17:01do that would be called revaluation
17:07so this is what is reversal of
17:09impairment now what we need to remember
17:11we already know that uh
17:15um
17:15the impairment loss and the revaluation
17:19Surplus issue revaluation Surplus
17:23and then we also know that reversal of
17:27impairment
17:30then we talked about impairment
17:32[Music]
17:34and cgu
17:37then we also talked about you know uh
17:40impairment of Goodwill of course that
17:43was a little thing that it it cannot be
17:46reversed so your is 36 this is all what
17:50you need to remember of course when we
17:52start doing questions there will be some
17:55more things which we need to focus at

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