Conditions for a reversal

Learning objectives

• Determine that a reversal occurs only if there has been a change in the estimates used to determine the recoverable amount, and never solely because of the unwinding of the discount.L2, L3

Normative references

• IAS 36 §114An impairment loss recognised for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine its recoverable amount since the last impairment loss was recognised; the carrying amount is then increased to its recoverable amount, subject to the cap in paragraph 117.
• IAS 36 §115A reversal reflects an increase in the estimated service potential of the asset, from use or sale, since the last impairment loss; paragraph 130 requires the change in estimate concerned to be identified. Examples: a change in the basis for the recoverable amount (fair value less costs of disposal or value in use), a change in the amount or timing of cash flows or in the discount rate (value in use), a change in the components of fair value less costs of disposal.
• IAS 36 §116The unwinding of the discount alone (cash flows becoming closer in time) may increase value in use without any increase in service potential; it does not justify a reversal.

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

13 questions

• Delvaux Textiles impaired a weaving loom in 20X1. Which of the following facts arising in 20X2 are internal reversal indications that require it to estimate the loom's recoverable amount again?L3
• An impairment loss recognised on an asset other than goodwill is reversed only if the estimates used to determine its recoverable amount have changed since the last impairment loss was recognised.L2
• Ferrand Optique may reverse an impairment loss on a piece of equipment when its value in use increases solely because its future cash flows are getting closer in time.L2
• When the recoverable amount of an impaired asset is now based on its fair value less costs of disposal rather than on its value in use, this change of basis is a change in estimate that may justify a reversal.L3
• Ravel Agrégats impaired a crusher last year. Which of the following situations may justify reversing this impairment loss?L2
• The conditions for a reversal are met for an asset other than goodwill of Moreau Céréales. To what amount is its carrying amount increased?L3
• In economic terms, what does the reversal of an impairment loss reflect under IAS 36?L3
• At the end of 20X1, Lorient Marine impaired a handling gantry crane, written down to its value in use of 400,000, calculated on five years of cash flows at 8%. At the end of 20X2, no assumption has changed: same annual cash flows, same rate. Recalculated, value in use is higher, solely because the cash flows are now closer. What should be concluded?L2
• Vasquez Énergie impaired a turbine at the end of 20X1 based on its value in use, calculated at 11%. At the end of 20X2, the appropriate discount rate is revised to 8% because of changing market conditions; the expected cash flows are unchanged. The recalculated value in use exceeds the carrying amount. What should be concluded?L3
• Orsini Immobilier impaired a warehouse at the end of 20X1; its recoverable amount was then its fair value less costs of disposal. At the end of 20X2, the warehouse's fair value, given and measured under IFRS 13, has increased thanks to the regeneration of the district; the estimated costs of disposal are unchanged and the new recoverable amount exceeds the carrying amount. Which analysis applies?L3
• An accountant at Dumoulin Agro presents his analysis of a grain dryer impaired in 20X1. Which step contains an error?L2
• Garonne Aéro impaired an assembly line in 20X1. Its management controller describes the analysis carried out at the end of 20X2. Which step is wrong?L3
• Loire Froid impaired a cold-storage warehouse in 20X1 based on its value in use. At the end of 20X2, an internal auditor reviews the closing file. Which step is wrong?L3