Reversal of Impairment Loss and Disclosures under Ind AS 36

Understand Reversal of Impairment Loss and Disclosures

Key rules to remember

Reversal test

Reverse only if there is a change in the estimates used to determine recoverable amount since the last impairment loss

Applies to an asset other than goodwill (para 114). An indicator review comes first.

Ceiling on carrying amount after reversal

New carrying amount = lower of (a) recoverable amount and (b) carrying amount had no impairment been recognised (net of depreciation)

Paras 114 and 117. For a CGU, this ceiling applies to each asset (para 123).

Reversal amount

Reversal = New carrying amount − Carrying amount before reversal

Carrying amount before reversal is after depreciation charged on the impaired amount.

Goodwill

Impairment loss on goodwill: no reversal

Para 124. Para 125 gives the reason: later increases are likely internally generated goodwill.

Recognition of reversal

Cost model: reversal in profit or loss. Revalued asset: treated as a revaluation increase

Para 119.

CGU allocation of reversal

Excess over an asset's cap is allocated pro rata to the other assets of the unit, except goodwill

Para 123.

How to solve Reversal of Impairment Loss and Disclosures questions

1. 1Identify what is impaired: a single asset, a CGU, or goodwill. If it is goodwill, stop: no reversal.
2. 2Check for a change in the estimates used to find recoverable amount since the last loss. If none, no reversal.
3. 3Find the carrying amount at the reporting date after depreciation on the impaired value.
4. 4Find the recoverable amount now (higher of fair value less costs of disposal and value in use).
5. 5Compute the depreciated historical carrying amount as if no impairment had occurred, using the original cost and the original depreciation pattern.
6. 6Take the lower of steps 4 and 5 as the new carrying amount. Reversal = this figure minus step 3.
7. 7Recognise the reversal in profit or loss, or as a revaluation increase if the asset is revalued. For a CGU, allocate by asset with caps and pro rata for the excess, excluding goodwill.
8. 8Add the required disclosures: reasons, amounts, and recoverable amount basis.

Quickest way: Two-number cap method

Common mistakes in Reversal of Impairment Loss and Disclosures

• Reversing an impairment loss on goodwill when the CGU recovers

  Students treat goodwill like any other asset in the CGU.

  Fix: Remember para 124: goodwill losses are never reversed. In a CGU reversal, allocate nothing to goodwill.

• Restoring the asset to recoverable amount without applying the cap

  Para 114 is remembered, but para 117 is forgotten.

  Fix: Always compute the carrying amount without impairment and take the lower figure.

• Computing the no-impairment figure from the impaired carrying amount

  Students continue depreciation on the written-down value.

  Fix: Use original cost and the original depreciation pattern, as if the impairment never happened.

• Reversing without checking for a change in estimates

  Students assume a higher recoverable amount alone is enough.

  Fix: State the change in estimates (cash flows, discount rate, or basis) as the condition. If it is not given, say so in your answer.

• Crediting profit or loss for a revalued asset

  The default rule is remembered, not the exception.

  Fix: For revalued assets, treat the reversal as a revaluation increase under the relevant standard, as para 119 says.

• Forgetting depreciation after the impairment

  Students jump from the impaired figure straight to reversal.

  Fix: Depreciate the impaired carrying amount over the remaining life before computing the reversal date's carrying amount.

Worked examples