Impairment of a revalued asset

Learning objectives

• Recognise the impairment loss on a revalued asset in other comprehensive income to the extent of the revaluation surplus for that same asset, and any excess in profit or loss.L2, L3

Normative references

• IAS 36 §5Excludes from the scope financial assets within IFRS 9, investment property measured at fair value and biological assets measured at fair value less costs to sell, but keeps within the scope assets revalued under other Standards: since the only difference between fair value and fair value less costs of disposal is the direct incremental costs of disposal, a revalued asset whose disposal costs are negligible is unlikely to be impaired; if they are not negligible, the asset is impaired if its value in use is less than its revalued amount. In both cases, the revaluation requirements of the applicable Standard are applied first, then IAS 36 to assess whether the asset may be impaired.
• IAS 36 §60An impairment loss is recognised immediately in profit or loss, except for a revalued asset, for which it is treated as a revaluation decrease in accordance with the applicable Standard.
• IAS 36 §61For a revalued asset, the loss is recognised in other comprehensive income to the extent of the revaluation surplus for that same asset, any excess being recognised in profit or loss.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

8 questions

• A building is carried under the revaluation model. How is its impairment loss recognised?L2
• Hestine measures its warehouses under the revaluation model. At the reporting date, a warehouse has just been revalued to its fair value under IAS 16: its revalued carrying amount is {revalued_carrying_amount}. Its disposal would involve costs of disposal of {costs_of_disposal} and its recoverable amount, equal to its value in use, is {recoverable_amount}. The revaluation surplus relating to this warehouse amounts to {revaluation_surplus}. Allocate the impairment loss between other comprehensive income and profit or loss.L2
• A hotel of Miravel, measured under the revaluation model, has just been revalued to its fair value at the reporting date and is carried at {revalued_carrying_amount}. Its disposal would involve costs of disposal of {costs_of_disposal}. Falling occupancy reduces its value in use, which is its recoverable amount, to {recoverable_amount}. The balance of the revaluation surplus relating to this hotel is {revaluation_surplus}. What part of the loss goes to other comprehensive income, and what part to profit or loss?L3
• Fontbrune applies the revaluation model to the building of a hotel it operates; the hotel generates cash inflows that are largely independent of those of its other assets, so its recoverable amount can be determined individually. The building has just been revalued to its fair value at the reporting date: its revalued carrying amount is {revalued_carrying_amount}. Its costs of disposal would be {costs_of_disposal}; its recoverable amount, equal to its value in use, is estimated at {recoverable_amount} and the revaluation surplus of this building amounts to {revaluation_surplus}. Record the impairment loss entry.L2
• Clos Varenne applies the revaluation model to a vineyard (land and vines, the vines being bearer plants within IAS 16); the grapes, agricultural produce, are excluded from this asset. After a hailstorm, the vineyard was revalued to its fair value at the reporting date: its revalued carrying amount is {revalued_carrying_amount}. Its disposal would involve costs of disposal of {costs_of_disposal}; as its value in use is {value_in_use}, its recoverable amount is its fair value less costs of disposal, i.e. {recoverable_amount}. The revaluation surplus recognised on this vineyard amounts to {revaluation_surplus}. Record the impairment loss.L3
• Rocheval revalues its two buildings to fair value at each reporting date. The revaluation surplus of the North building is 70,000; that of the South building is 5,000. After the year-end revaluation, the IAS 36 test of the South building, whose costs of disposal are not negligible and whose value in use is below the revalued amount, shows an impairment loss of 20,000. The accountant proposes to charge the whole loss to the total of the revaluation surpluses (75,000), which covers it comfortably. Which treatment should be applied?L3
• An office building of Belmonde is measured under the revaluation model and has just been revalued to its fair value at the reporting date; its revaluation surplus amounts to 90,000. The departure of its main tenant reduces its value in use and, as its costs of disposal are not negligible, its recoverable amount comes out 35,000 below its carrying amount. Out of prudence, the finance director wishes to recognise the loss in profit or loss. What is the correct effect?L3
• The marina of Calanque Bleue measures its floating pontoons under the revaluation model. The main pontoon has just been revalued to its fair value at the reporting date, i.e. {revalued_carrying_amount}; its disposal would involve costs of disposal of {costs_of_disposal} and its value in use, which is its recoverable amount, is {recoverable_amount}. Its own revaluation surplus is {own_surplus}, while the harbour master's office, another revalued asset, carries a surplus of {other_asset_surplus}. Determine the part of the loss recognised in other comprehensive income and the part recognised in profit or loss.L3