Reversal of Impairment Loss under Ind AS 36

Understand Reversal of Impairment Loss

Key rules to remember

Cap on reversal (individual asset)

Maximum carrying amount after reversal = lower of (Recoverable amount, Carrying amount had no impairment been recognised, net of depreciation)

Reversal = this figure − present carrying amount. If negative or zero, no reversal.

Carrying amount without impairment

Original cost − depreciation charged as if no impairment had occurred up to the date of reversal

Use original useful life and residual value, adjusted only for genuine changes in estimates.

Allocation of reversal to a CGU

Reversal to an asset = Total reversal × Asset's carrying amount ÷ Total carrying amount of eligible assets

Goodwill is excluded. Each asset's share is limited to the lower of its recoverable amount (if determinable) and its no-impairment carrying amount. Redistribute any excess to the other assets pro rata.

Goodwill rule

Reversal of goodwill impairment = Nil

Applies always, including in interim periods.

Revised depreciation after reversal

Revised depreciation = (Revised carrying amount − Residual value) ÷ Remaining useful life

Adjust prospectively.

How to solve Reversal of Impairment Loss questions

1. 1Check whether the asset is goodwill. If yes, the reversal is nil. Stop.
2. 2Confirm there is an indication of reversal and a change in estimates since the last loss. Passage of time alone is not enough.
3. 3Compute the present carrying amount after the earlier impairment and depreciation to the date of reversal.
4. 4Compute the carrying amount that would have existed without any impairment, using original cost and original depreciation pattern.
5. 5Take the recoverable amount (higher of fair value less costs of disposal and value in use) at the reversal date.
6. 6Maximum carrying amount = lower of recoverable amount and the no-impairment carrying amount. Reversal = maximum − present carrying amount.
7. 7For a CGU, allocate the reversal pro rata to non-goodwill assets, applying each asset's cap and redistributing any excess.
8. 8Pass the entry (Dr Asset, Cr Impairment loss reversal in P&L unless revalued), then revise future depreciation.

Quickest way: Three-number comparison

Common mistakes in Reversal of Impairment Loss

• Reversing goodwill impairment when the CGU recovers.

  Students treat goodwill like any other asset in the CGU.

  Fix: Remember the rule: goodwill impairment is never reversed. Allocate the reversal only to other assets.

• Capping the reversal at original cost instead of depreciated carrying amount.

  The depreciation that would have been charged is forgotten.

  Fix: Always compute carrying amount as if no impairment occurred, deducting depreciation up to the reversal date.

• Using the recoverable amount as the new carrying amount without comparing the cap.

  The recoverable amount is the number given in the question, so it looks like the answer.

  Fix: Take the lower of recoverable amount and the no-impairment carrying amount.

• Not allocating a CGU reversal pro rata or ignoring each asset's own cap.

  Students apply the cap only at the level of the unit.

  Fix: Allocate on carrying amounts, test each asset against its own cap, and redistribute the excess.

• Crediting the reversal to profit or loss when the asset is on the revaluation model.

  The default P&L treatment is memorised without the exception.

  Fix: If the asset is revalued, treat the reversal as a revaluation increase under the relevant standard (OCI, except to the extent it reverses a past revaluation decrease recognised in P&L).

• Forgetting to revise depreciation after a reversal.

  The question stops at the journal entry.

  Fix: Spread the revised carrying amount, less residual value, over the remaining life from the reversal date.

Worked examples