Illustration 4 – Reversal of an Impairment Loss
Use the data for enterprise T as presented in Illustration 2, with supplementary information as provided in this illustration. In this illustration tax effects are ignored.
Background
In 20X6, the government is still in office in Country A, but the business situation is improving. The effects of the export laws on T’s production are proving to be less drastic than initially expected by management. As a result, management estimates that production will increase by 30%. This favourable change requires T to re-estimate the recoverable amount of the net assets of the Country A operations (see paragraphs 94-95 of this Standard). The cash-generating unit for the net assets of the Country A operations is still the Country A operations.
Calculations similar to those in Illustration 2 show that the recoverable amount of the Country A cash-generating unit is now Rs. 1,710 lakhs.
Reversal of Impairment Loss
T compares the recoverable amount and the net carrying amount of the Country A cash-generating unit.
Schedule 1. Calculation of the carrying amount of the Country A cashgenerating unit at the end of 20X6 (Amount in Rs. lakhs)
| Goodwill | Identifiable assets | Total | |
| End of 20X4 (Example 2) | |||
| Historical cost | 1,000 | 2,000 | 3,000 |
| Accumulated depreciation/ amortisation (4 years) | (800) | (533) | (1,333) |
| Impairment loss | (200) | (107) | (307) |
| Carrying amount after impairment loss | 0 | 1,360 | 1,360 |
| End of 20X6 Additional depreciation (2 years)(1) | – | (247) | (247) |
| Carrying amount | 0 | 1,113 | 1,113 |
| Recoverable amount | 1,710 | ||
| Excess of recoverable amount over carrying amount | 597 |
(1)After recognition of the impairment loss at the end of 20X4, T revised the depreciation charge for the Country A identifiable assets (from Rs. 133.3 lakhs per year to Rs. 123.7 lakhs per year), based on the revised carrying amount and remaining useful life (11 years).
There has been a favourable change in the estimates used to determine the recoverable amount of the Country A net assets since the last impairment loss was recognised. Therefore, in accordance with paragraph 98 of this Standard, T recognises a reversal of the impairment loss recognised in 20X4.
In accordance with paragraphs 106 and 107 of this Standard, T increases the carrying amount of the Country A identifiable assets by Rs. 87 lakhs (see Schedule 3), i.e., up to the lower of recoverable amount (Rs. 1,710 lakhs) and the identifiable assets’ depreciated historical cost (Rs. 1,200 lakhs) (see Schedule 2). This increase is recognised in the statement of profit and loss immediately.
Schedule 2. Determination of the depreciated historical cost of the Country A identifiable assets at the end of 20X6 (Amount in Rs. lakhs)
| End of 20X6 |
Identifiable assets |
| Historical cost |
2,000 |
| Accumulated depreciation (133.3 * 6 years) |
(800) |
|
Depreciated historical cost |
1,200 |
| Carrying amount (Schedule 1) |
1,113 |
|
Difference |
87 |
Schedule 3. Carrying amount of the Country A assets at the end of 20X6 (Amount in Rs. lakhs)
| End of 20X6 | Goodwill | Identifiable assets | Total |
| Gross carrying amount | 1,000 | 2,000 | 3,000 |
| Accumulated depreciation/ amortisation | (800) | (780) | (1,580) |
| Accumulated impairment loss | (200) | (107) | (307) |
| Carrying amount | 0 | 1,113 | 1,113 |
| Reversal of impairment loss | 0 | 87 | 87 |
| Carrying amount after reversal of impairment loss | 0 | 1,200 | 1,200 |