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ACCA Strategic Professional · Strategic Business Reporting (International) · Non-current assets

Epsilon Co impaired an item of equipment (not revalued) by $40,000 two years ago. Its depreciated historical cost would now be $300,000, and its current carrying amount is $270,000. Following improved market conditions, its recoverable amount is now $320,000. Under IAS 36, what is the maximum carrying amount after reversing the impairment?

The carrying amount is capped at $300,000. An impairment reversal cannot lift an asset above the depreciated historical cost it would have had without the earlier impairment, even though recoverable amount is $320,000.

  1. A$320,000
  2. B$270,000
  3. C$300,000Correct
  4. D$310,000

Explanation

A reversal cannot raise the carrying amount above what it would have been had no impairment been recognised, net of depreciation, i.e. $300,000. Recoverable amount of $320,000 is higher, so the cap applies.

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