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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 on an asset carried under the cost model. If the recoverable amount later rises above the carrying amount, the entity is most likely permitted to:

The entity may reverse the loss, but only up to the carrying amount that would have existed had no impairment occurred, after normal depreciation. IFRS allows reversals for assets other than goodwill, whereas US GAAP generally prohibits them for assets held and used.

  1. Areverse the loss up to the carrying amount that would have existed without impairmentCorrect
  2. Breverse the entire loss regardless of depreciation that would have been charged
  3. Cleave the loss in place because reversals are prohibited for all long-lived assets

Explanation

IFRS permits reversal of impairment losses for assets other than goodwill, but the reversal is capped at the depreciated carrying amount that would have existed had no impairment been recognized. Full reversal ignoring depreciation is too high. Prohibition applies to goodwill, and US GAAP generally for held-and-used assets.

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