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CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets

Under IFRS, an entity previously recognized an impairment loss of 90,000 on equipment. The original carrying amount before impairment was 600,000 with 10 years remaining life, so the post-impairment carrying amount was 510,000. After 2 years of straight-line depreciation with no residual value, the recoverable amount rises to 560,000. Carrying amount had the asset not been impaired would be 480,000. The reversal of impairment loss recognized is most likely closest to:

The reversal is about 72,000. After two years the impaired asset's carrying amount is 408,000, while the no-impairment carrying amount would be 480,000. IFRS caps the reversal at that higher historical-cost figure, even though recoverable amount is 560,000.

  1. A38,000
  2. B72,000Correct
  3. C80,000

Explanation

Post-impairment depreciation over 10 years is 51,000 a year, so after 2 years the carrying amount is 408,000 (not 510,000). The cap is the carrying amount had no impairment occurred. Original basis: 600,000 less 2 years at 60,000 = 480,000. Recoverable amount is 560,000, so the reversal is limited to 480,000 − 408,000 = 72,000. Reversal of 152,000 would exceed the cap; 80,000 is the gap between 560,000 and 480,000.

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