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Advanced Accounting · AS 28 Impairment of Assets

Reversal of Impairment Loss and Disclosures under AS 28

Updated 5 October 2026 · Fact-checked

Under AS 28, you reverse an impairment loss only if the estimate of recoverable amount has changed since the loss was recognised. The new carrying amount cannot exceed what it would have been, net of depreciation, had no loss been recognised. Goodwill losses are never reversed. Disclosures cover losses, reversals, and key assumptions.

Understand Reversal of Impairment Loss and Disclosures

An impairment loss is recognised when an asset's carrying amount is more than its recoverable amount. Later, conditions may improve. AS 28 then lets you reverse the loss, but only under strict rules.

At each balance sheet date, you assess whether there is any indication that an impairment loss recognised earlier no longer exists or has decreased. Examples are a rise in the asset's market value, favourable changes in the technological or market environment, or a fall in market interest rates that raises value in use. If there is such an indication, you estimate the recoverable amount again.

A loss is reversed only if there has been a change in the estimates used to work out the recoverable amount since the last loss was recognised. Simply passing of time or unwinding of discount is not a reason to reverse.

The reversal has a ceiling. The increased carrying amount must not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised in earlier years. This stops you from showing the asset at a figure above its original depreciated cost. Besides the new recoverable amount, this ceiling is the only cap on the reversal. You do not run a separate test against the original impairment loss.

Two special points. An impairment loss on goodwill is not reversed in a later period. Also, a reversal for an asset carried at cost is recognised as income in the statement of profit and loss immediately. If the asset is carried at a revalued amount, the reversal is a revaluation increase credited to revaluation surplus, except to the extent it reverses an earlier revaluation decrease charged to profit and loss. That part is credited to profit and loss. After a reversal, depreciation is adjusted in future periods to allocate the revised carrying amount, less residual value, over the remaining useful life.

Key rules to remember

Ceiling on reversal
Maximum carrying amount after reversal = Carrying amount that would have existed (net of depreciation) had no impairment loss been recognised
Compare this with the recoverable amount. The asset is restated to the lower of the two.
Reversal amount
Reversal = Lower of (Recoverable amount, Ceiling) − Carrying amount before reversal
Both figures must be taken at the same date, after charging that year's depreciation. The ceiling (carrying amount without impairment, net of depreciation) and the recoverable amount are the only two limits. Do not compare the reversal with the original loss separately.
Goodwill rule
Impairment loss on goodwill: no reversal in a later period
Applies to goodwill only. Other assets can have losses reversed.
Depreciation after reversal
Revised depreciation = (Revised carrying amount − Residual value) ÷ Remaining useful life
Adjust depreciation in future periods only. Do not restate past years.
Cash generating unit reversal
Reversal allocated pro rata to assets of the unit other than goodwill, based on carrying amounts
Each asset is subject to its own limit: it may not be raised above the lower of its recoverable amount (if determinable) and the carrying amount it would have had, net of depreciation, without the loss. If an asset hits its limit, the excess is allocated pro rata to the other assets of the unit (other than goodwill).

How to solve Reversal of Impairment Loss and Disclosures questions

Use the same sequence for any reversal question. Do the depreciation workings carefully because most marks sit there.

  1. 1Note the cost, date of purchase, useful life, residual value and depreciation method.
  2. 2Compute the carrying amount at the date of impairment, after depreciation for that year, and the impairment loss (carrying amount − recoverable amount).
  3. 3Compute the revised depreciation for the years after the loss, using the reduced carrying amount over the remaining life.
  4. 4At the reversal date, compute the carrying amount before reversal, after that year's depreciation.
  5. 5Compute the ceiling: the carrying amount at the same date had the original depreciation continued with no loss.
  6. 6Reversal = lower of the new recoverable amount and the ceiling, minus the carrying amount before reversal. For an asset at cost, credit the statement of profit and loss. For a revalued asset, credit revaluation surplus, except to the extent the reversal reverses an earlier revaluation decrease charged to profit and loss.
  7. 7Show the revised depreciation for the remaining years. Add the disclosures if the question asks.

Quickest way: Ceiling-first method for reversal numericals

When to use it: Use it for MCQs and for the calculation part of written answers when time is short.

  1. Write the original depreciated cost at the reversal date straight away: cost less straight-line depreciation for the years elapsed. This is the ceiling.
  2. Write the carrying amount before reversal: post-impairment carrying amount less depreciation on it.
  3. Pick the lower of the ceiling and the new recoverable amount. Subtract the carrying amount before reversal.
  4. For MCQs, eliminate any option where the asset ends above the ceiling, and any option that reverses goodwill.
  5. In the written answer, show each of the three figures on separate lines with a heading. Step marks go to the ceiling, the lower-of test and the journal entry.

Common mistakes in Reversal of Impairment Loss and Disclosures

  • Reversing the full impairment loss without checking the ceiling.

    Students assume reversal means undoing the loss completely.

    Fix: Always compute the carrying amount without impairment at the same date, and cap the reversal at that figure.

  • Ignoring depreciation charged after the impairment when finding the carrying amount before reversal.

    Students keep the post-impairment amount as it was at the loss date.

    Fix: Deduct depreciation on the reduced carrying amount for each year since the loss, then compare.

  • Reversing an impairment loss on goodwill.

    Students treat all assets alike.

    Fix: Remember that goodwill losses are never reversed in a later period. A rise in recoverable amount is not recognised.

  • Treating a reversal as an adjustment to depreciation of earlier years.

    Students try to restate the past.

    Fix: For an asset at cost, credit the reversal to profit and loss in the current year, and change only future depreciation.

  • Reversing a loss because of unwinding of discount or passage of time alone.

    Value in use rises as cash flows come closer, so it looks like an improvement.

    Fix: Reverse only when there is a change in estimates used to determine recoverable amount.

  • Crediting profit and loss for a reversal on a revalued asset.

    Students forget the revaluation treatment.

    Fix: For a revalued asset, treat the reversal as a revaluation increase credited to revaluation surplus, except to the extent it reverses an earlier revaluation decrease charged to profit and loss. Credit that part to profit and loss.

Worked examples

Example 1

A machine bought on 1 April 2023 for ₹10,00,000 has a useful life of 5 years and nil residual value. Depreciation is straight line. On 31 March 2025 the recoverable amount was ₹4,50,000, so an impairment loss was recognised. On 31 March 2026 the recoverable amount is estimated at ₹5,50,000 because of a change in estimates. Compute the impairment loss, the depreciation for 2025-26 and the reversal, if any.

Show the solution
  1. Annual depreciation = ₹10,00,000 ÷ 5 = ₹2,00,000.
  2. Carrying amount on 31 March 2025 = ₹10,00,000 − ₹4,00,000 = ₹6,00,000.
  3. Impairment loss = ₹6,00,000 − ₹4,50,000 = ₹1,50,000.
  4. Remaining life = 3 years. Revised depreciation = ₹4,50,000 ÷ 3 = ₹1,50,000.
  5. Carrying amount on 31 March 2026 before reversal = ₹4,50,000 − ₹1,50,000 = ₹3,00,000.
  6. Ceiling: carrying amount without impairment = ₹10,00,000 − 3 × ₹2,00,000 = ₹4,00,000.
  7. Recoverable amount ₹5,50,000 is higher than the ceiling, so the asset is restated to the lower figure, ₹4,00,000.
  8. Reversal = ₹4,00,000 − ₹3,00,000 = ₹1,00,000, credited to the statement of profit and loss.
  9. Future depreciation = ₹4,00,000 ÷ 2 remaining years = ₹2,00,000 a year.

Answer: Impairment loss ₹1,50,000. Depreciation for 2025-26 is ₹1,50,000. Reversal on 31 March 2026 is ₹1,00,000, taking the carrying amount to ₹4,00,000. Depreciation from 2026-27 is ₹2,00,000 a year.

Example 2

Explain whether the following can be reversed and the limit: (a) an impairment loss of ₹3,00,000 on goodwill recognised last year, with the recoverable amount of the unit now higher; (b) a loss of ₹2,00,000 on a plant, where the ceiling is ₹7,00,000, the carrying amount before reversal is ₹5,50,000 and the new recoverable amount is ₹6,20,000.

Show the solution
  1. (a) AS 28 does not allow an impairment loss on goodwill to be reversed in a later period. The increase in recoverable amount is not recognised through reversal, so nothing is reversed.
  2. (b) The asset can be restated to the lower of the recoverable amount ₹6,20,000 and the ceiling ₹7,00,000, which is ₹6,20,000.
  3. Reversal = ₹6,20,000 − ₹5,50,000 = ₹70,000.
  4. The recoverable amount (₹6,20,000) is lower than the ceiling (₹7,00,000), so it is the binding limit. The ceiling is not breached: the headroom under it is ₹7,00,000 − ₹5,50,000 = ₹1,50,000, and the reversal of ₹70,000 is within that. No separate comparison with the original loss is needed. Credit ₹70,000 to the statement of profit and loss, if the plant is carried at cost.
  5. Disclose the reversal, the asset class and the events that led to it.

Answer: (a) No reversal is allowed for goodwill. (b) Reversal of ₹70,000 is recognised, taking the plant to ₹6,20,000.

Exam tips

  • In depreciation-based numericals, show the 'no impairment' carrying amount as a separate working. Examiners look for it.
  • Read the question for the words 'change in estimates'. Without it, reversal is not justified.
  • In theory answers, write the rule first, then the ceiling, then the goodwill exception, then the accounting entry.
  • For disclosure questions, group your answer by class of assets. For each material individual loss or reversal, give the events, the amount, the nature of the asset and, where AS 17 applies, the reportable segment. Also mention the amounts of losses and reversals recognised in profit and loss and in revaluation surplus.
  • For MCQs, test the options against the ceiling and the goodwill rule. These two checks remove most wrong answers.

Practice questions from AS 28 Impairment of Assets

Reversal of Impairment Loss and Disclosures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Reversal of Impairment Loss and Disclosures: frequently asked questions

Can impairment loss on goodwill be reversed under AS 28?

No. AS 28 says an impairment loss on goodwill is not reversed in a subsequent period. Later increases in value of goodwill are generally internally generated and not recognised.

What is the limit on reversal of an impairment loss?

The asset's carrying amount after reversal cannot exceed the carrying amount it would have had, net of depreciation or amortisation, if no impairment loss had been recognised. It is also limited by the new recoverable amount. These two are the only limits, so you do not need a separate test against the original loss.

What disclosures does AS 28 require for impairment losses and reversals?

For each class of assets, you disclose the amounts of impairment losses and reversals recognised in the statement of profit and loss and directly in revaluation surplus during the period, with the line items concerned. For each material individual loss or reversal, you disclose the events and circumstances, the amount, the nature of the asset and the reportable segment, and the recoverable amount, stating whether it is net selling price or value in use.

Where is a reversal of impairment loss shown?

For an asset carried at cost, it is recognised immediately as income in the statement of profit and loss. For a revalued asset, it is a revaluation increase credited to revaluation surplus, except to the extent it reverses an earlier revaluation decrease charged to profit and loss.