Reversal of impairment losses

Reversal of impairment losses of a disposal group’s assets occurs when an asset held for sale is impaired but then revalues, as follows:

Fair value less costs to sell of assets held for sale may exceed the assets carrying amounts either at the initial classification date or on subsequent remeasurement under IFRS 5. In these circumstances, the entity may need to record a gain arising from the reversal of previous impairment losses but with the following conditions: Reversal of impairment losses

  • An impairment loss recorded under IAS 36 (prior to the held for sale classification) or under IFRS 5 (at or after the classification) has previously reduced the carrying amounts of the assets under review; Reversal of impairment losses
  • The potential gain does not exceed cumulative impairment losses previously recognised under IAS 36 or IFRS 5 (IFRS 5 22 (b));
  • The carrying amounts of assets excluded from the measurement scope of IFRS 5 are not affected by a reversal of a previous write-down of other assets; and
  • A previous write-down of goodwill is not reversed. Reversal of impairment losses

In summary, reversal of previous impairment losses may only be recognised in relation to non-goodwill assets that are within the measurement scope of IFRS 5.

Example: Reversal of previous impairment losses

Fair value less costs to sell of a disposal group’s assets has been determined at CU 12,000. The current carrying amount of the assets has been determined at CU 8,200, which already reflects the remeasurement of all assets that are excluded from the scope of IFRS 5. An analysis of the individual carrying amounts prior to a potential reversal of impairment losses is as follows:

IFRS 5 Reversal of impairment losses

The middle column summarises write-downs that have previously been allocated to the individual categories of assets.

  • Goodwill impairment losses are never reversed. The carrying amount of goodwill therefore remains at CU 1,500.
  • Previous write-downs of the deferred tax asset or the trade receivable are outside the measurement scope of IFRS 5 and have already been remeasured in accordance with IAS 12 and IAS 39, respectively. Further changes in the carrying amount of these assets are therefore not permitted.

The entity should only book a reversal of a previously recognised impairment loss for other intangible assets (CU 500) and property, plant and equipment (CU 2,000). This increases the carrying amount of the disposal group to CU 10,700, which is the upper limit set by IFRS 5 despite the disposal group’s fair value less costs to sell being CU 12,000.

Further explanations – Reversal of impairment losses

Similarly to assessing whether assets are impaired, entities are required to assess, at the end of each reporting period, whether there is any indication that an impairment loss recognised in prior periods should be reversed or partially reversed. Paragraph IAS 36 111 gives a list of minimum indicators to be considered. The list is analogous to IAS 36 12 with a notable exception of comparing the carrying amount of the net assets of the entity to its market capitalisation (IAS 36 12(d)).

Something else -   IFRS 5 Non-current assets Held for Sale and Discontinued Operations

It’s important to note that a reversal of an impairment loss must result from a change in estimates used for calculation of recoverable amount (e.g. cash flows, discount rate). In other words, entities cannot reverse an impairment loss simply because of unwinding of the discount or accumulating depreciation of assets (IAS 36 114-116).

Reversal of an impairment loss on CGU is allocated to individual assets on a pro-rata basis, but the increased carrying amount cannot be higher than the carrying amount that would have been determined (net of depreciation) without impairment loss in previous years. Furthermore, the increased carrying amount of an individual asset cannot also be higher than its recoverable amount  (IAS 36 122-123).

Reversal of impairment losses

Reversal of impairment losses Reversal of impairment losses Reversal of impairment losses Reversal of impairment losses

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Something else -   IAS 36 Other impairment issues

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