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Thread: 28 Accounting Standard 28 – Impairment of Assets - AS 28

  1. #11
    Accounting Standards
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    Default Recognition and Measurement of an Impairment Loss of Accounting Standard (AS) 28 – Impairment of Assets

    Recognition and Measurement of an Impairment Loss of Accounting Standard (AS) 28 – Impairment of Assets


    56. Paragraphs 57 to 62 set out the requirements for recognising and measuring impairment losses for an individual asset. Recognition and measurement of impairment losses for a cash-generating unit are dealt with in paragraphs 87 to 92.


    57. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset should be reduced to its recoverable amount. That reduction is an impairment loss.

    58. An impairment loss should be recognised as an expense in the statement of profit and loss immediately, unless the asset is carried at revalued amount in accordance with another Accounting Standard (see Accounting Standard (AS) 10, Accounting for Fixed Assets), in which case any impairment loss of a revalued asset should be treated as a revaluation decrease under that Accounting Standard.

    59. An impairment loss on a revalued asset is recognised as an expense in the statement of profit and loss. However, an impairment loss on a revalued asset is recognised directly against any revaluation surplus for the asset to the extent that the impairment loss does not exceed the amount held in the revaluation surplus for that same asset.

    60. When the amount estimated for an impairment loss is greater than the carrying amount of the asset to which it relates, an enterprise should recognise a liability if, and only if, that is required by another Accounting Standard.

    61. After the recognition of an impairment loss, the depreciation (amortisation) charge for the asset should be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.

    62. If an impairment loss is recognised, any related deferred tax assets or liabilities are determined under Accounting Standard (AS) 22, Accounting for Taxes on Income (see Example 3 given in the Appendix).
    Last edited by Accounting Standards; 11-08-2010 at 12:36 PM.

  2. #12
    Accounting Standards
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    Default Cash Generating Units of Accounting Standard (AS) 28 – Impairment of Assets

    Cash-Generating Units of Accounting Standard (AS) 28 – Impairment of Assets

    63. Paragraphs 64 to 92 set out the requirements for identifying the cashgenerating unit towhich an asset belongs and determining the carrying amount of, and recognising impairment losses for, cash-generating units.

    Identification of the Cash-Generating Unit to Which an Asset Belongs


    64. If there is any indication that an asset may be impaired, the recoverable amount should be estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, an enterprise should determine the recoverable amount of the cash-generating
    unit to which the asset belongs (the asset’s cash-generating unit).

    65. The recoverable amount of an individual asset cannot be determined if:

    (a) the asset’s value in use cannot be estimated to be close to its net selling price (for example, when the future cash flows from continuing use of the asset cannot be estimated to be negligible);
    and

    (b) the asset does not generate cash inflows fromcontinuing use that are largely independent of those from other assets. In such cases, value in use and, therefore, recoverable amount, can be determined only for the asset’s cash-generating unit.


    Example

    A mining enterprise owns a private railway to support its mining activities. The private railway could be sold only for scrap value and the private railway does not generate cash inflows fromcontinuing use that are largely independent of the cash inflows from the other assets of the mine.

    It is not possible to estimate the recoverable amount of the private railway because the value in use of the private railway cannot be determined and it is probably different from scrap value. Therefore,
    the enterprise estimates the recoverable amount of the cashgenerating unit to which the private railway belongs, that is, the mine as a whole.

    66. As defined in paragraph 4, an asset’s cash-generating unit is the smallest group of assets that includes the asset and that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. Identification of an asset’s cash-generating unit involves judgement. If recoverable amount cannot be determined for an
    individual asset, an enterprise identifies the lowest aggregation of assets that generate largely independent cash inflows from continuing use.

    Example

    A bus company provides services under contract with a municipality that requires minimum service on each of five separate routes. Assets devoted to each route and the cash flows from each route can be identified separately. One of the routes operates at a significant loss.

    Because the enterprise does not have the option to curtail any one bus route, the lowest level of identifiable cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets is the cash inflows generated by the five routes together. The cash-generating unit for each route is the bus company as a whole.

    67. Cash inflows from continuing use are inflows of cash and cash equivalents received from parties outside the reporting enterprise. In identifying whether cash inflows from an asset (or group of assets) are largely independent of the cash inflows fromother assets (or groups of assets), an enterprise considers various factors including howmanagementmonitors the enterprise’s operations (such as by product lines, businesses, individual locations, districts or regional areas or in some otherway) or howmanagement makes decisions about continuing or disposing of the enterprise’s assets and operations. Example 1 in the Appendix gives examples of identification of a cash-generating unit.

    68. If an active market exists for the output produced by an asset or a group of assets, this asset or group of assets should be identified as a separate cash-generating unit, even if some or all of the output is used internally. If this is the case, management’s best estimate of future market prices for the output should be used:

    (a) in determining the value in use of this cash-generating unit, when estimating the future cash inflows that relate to the internal use of the output; and

    (b) in determining the value in use of other cash-generating units of the reporting enterprise, when estimating the future cash outflows that relate to the internal use of the output.

    69. Even if part or all of the output produced by an asset or a group of assets is used by other units of the reporting enterprise (for example, products at an intermediate stage of a production process), this asset or group of assets forms a separate cash-generating unit if the enterprise could sell this
    output in an active market. This is because this asset or group of assets could generate cash inflows from continuing use that would be largely independent of the cash inflows from other assets or groups of assets. In using information based on financial budgets/forecasts that relates to such a
    cash-generating unit, an enterprise adjusts this information if internal transferprices do not reflect management’s best estimate of future market prices for the cash-generating unit’s output.

    70. Cash-generating units should be identified consistently from period to period for the same asset or types of assets, unless a change is justified.

    71. If an enterprise determines that an asset belongs to a different cashgenerating unit than in previous periods, or that the types of assets aggregated for the asset’s cash-generating unit have changed, paragraph 121 requires certain disclosures about the cash-generating unit, if an impairment loss is recognised or reversed for the cash-generating unit and is material to the
    financial statements of the reporting enterprise as a whole.
    Last edited by Accounting Standards; 11-08-2010 at 12:37 PM.

  3. #13
    Accounting Standards
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    Default Recoverable Amount and Carrying Amount of a Cash- Generating Unit of Accounting Standard (AS) 28 – Impairment of Assets

    Recoverable Amount and Carrying Amount of a Cash- Generating Unit of Accounting Standard (AS) 28 – Impairment of Assets


    72. The recoverable amount of a cash-generating unit is the higher of the cash-generating unit’s net selling price and value in use. For the purpose of determining the recoverable amount of a cash-generating unit, any reference in paragraphs 15 to 55 to ‘an asset’ is read as a reference to ‘a cashgenerating unit’.


    73. The carrying amount of a cash-generating unit should be determined consistently with the way the recoverable amount of the cash-generating unit is determined.

    74. The carrying amount of a cash-generating unit:

    (a) includes the carrying amount of only those assets that can be attributed directly, or allocated on a reasonable and consistent basis, to the cash-generating unit and that will generate the future
    cash inflows estimated in determining the cash-generating unit’s value in use; and

    (b) does not include the carrying amount of any recognised liability, unless the recoverable amount of the cash-generating unit cannot be determined without consideration of this liability.

    This is because net selling price and value in use of a cash-generating unit are determined excluding cash flows that relate to assets that are not part of the cash-generating unit and liabilities that have already been recognised in the financial statements, as set out in paragraphs 23 and 35.

    75. Where assets are grouped for recoverability assessments, it is important to include in the cash-generating unit all assets that generate the relevant stream of cash inflows from continuing use. Otherwise, the cash-generating unit may appear to be fully recoverable when in fact an impairment loss has occurred. In some cases, although certain assets contribute to the estimated future cash flows of a cash-generating unit, they cannot be allocated to the cash-generating unit on a reasonable and consistent basis. This might be the case for goodwill or corporate assets such as head office assets. Paragraphs 78 to 86 explain how to deal with these assets in testing a cash-generating unit for impairment.


    76. Itmay be necessary to consider certain recognised liabilities in order to determine the recoverable amount of a cash-generating unit. This may occur if the disposal of a cash-generating unit would require the buyer to take over a liability. In this case, the net selling price (or the estimated cash flow from ultimate disposal) of the cash-generating unit is the estimated selling price
    for the assets of the cash-generating unit and the liability together, less the costs of disposal. In order to perform a meaningful comparison between the carrying amount of the cash-generating unit and its recoverable amount, the carrying amount of the liability is deducted in determining both the cashgenerating unit’s value in use and its carrying amount.


    Example

    A company operates a mine in a country where legislation requires that the owner must restore the site on completion of its mining operations. The cost of restoration includes the replacement of the
    overburden, which must be removed before mining operations commence. A provision for the costs to replace the overburden was recognised as soon as the overburden was removed. The amount
    provided was recognised as part of the cost of the mine and is being depreciated over the mine’s useful life. The carrying amount of the provision for restoration costs is Rs. 50,00,000, which is equal to the present value of the restoration costs.


    The enterprise is testing the mine for impairment. The cash-generating unit for the mine is the mine as a whole. The enterprise has received various offers to buy the mine at a price of around Rs. 80,00,000; this price encompasses the fact that the buyer will take over the obligation to restore the overburden. Disposal costs for the mine are negligible.The value in use of themine is
    approximatelyRs. 1,20,00,000 excluding restoration costs. The carrying amount of the mine is Rs.
    1,00,00,000.

    The net selling price for the cash-generating unit is Rs. 80,00,000.

    This amount considers restoration costs that have already been provided for. As a consequence, the value in use for the cashgenerating unit is determined after consideration of the restoration
    costs and is estimated to be Rs. 70,00,000 (Rs. 1,20,00,000 less Rs. 50,00,000). The carrying amount of the cash-generating unit is Rs. 50,00,000, which is the carrying amount of the mine (Rs.
    1,00,00,000) less the carrying amount of the provision for restoration costs (Rs. 50,00,000).
    77. For practical reasons, the recoverable amount of a cash-generating unit is sometimes determined after consideration of assets that are not part of the cash-generating unit (for example, receivables or other financial assets) or liabilities that have already been recognised in the financial statements (for example, payables, pensions and other provisions). In such cases, the
    carrying amount of the cash-generating unit is increased by the carrying amount of those assets and decreased by the carrying amount of those liabilities.
    Last edited by Accounting Standards; 11-08-2010 at 12:37 PM.

  4. #14
    Accounting Standards
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    Default Goodwill of Accounting Standard (AS) 28 – Impairment of Assets

    Goodwill of Accounting Standard (AS) 28 – Impairment of Assets

    78. In testing a cash-generating unit for impairment, an enterprise should identify whether goodwill that relates to this cash-generating unit is recognised in the financial statements. If this is the case, an enterprise should:

    (a) perform a ‘bottom-up’ test, that is, the enterprise should:

    (i) identify whether the carrying amount of goodwill can be allocated on a reasonable and consistent basis to the cash-generating unit under review; and

    (ii) then, compare the recoverable amount of the cashgenerating unit under review to its carrying amount (including the carrying amount of allocated goodwill, if any) and recognise any impairment loss in accordance with paragraph 87.

    The enterprise should perform the step at (ii) above even if none of the carrying amount of goodwill can be allocated on a reasonable and consistent basis to the cash-generating unit under review; and (b) if, in performing the ‘bottom-up’ test, the enterprise could not allocate the carrying amount of goodwill on a reasonable and consistent basis to the cash-generating unit under review,
    the enterprise should also perform a ‘top-down’ test, that is, the enterprise should:

    (i) identify the smallest cash-generating unit that includes the cash-generating unit under review and to which the carrying amount of goodwill can be allocated on a reasonable and consistent basis (the ‘larger’ cashgenerating unit); and

    (ii) then, compare the recoverable amount of the larger cashgenerating unit to its carrying amount (including the carrying amount of allocated goodwill) and recognise any impairment loss in accordance with paragraph 87.


    79. Goodwill arising on acquisition represents a payment made by an acquirer in anticipation of future economic benefits. The future economic benefits may result fromsynergy between the identifiable assets acquired or from assets that individually do not qualify for recognition in the financial statements.Goodwill does not generate cash flows independently from other assets or groups of assets and, therefore, the recoverable amount of goodwill as an individual asset cannot be determined. As a consequence, if there is an indication that goodwillmay be impaired, recoverable amount is determined for the cash-generating unit to which goodwill belongs. This amount is then
    compared to the carrying amount of this cash-generating unit and any impairment loss is recognised in accordance with paragraph 87.

    80. Whenever a cash-generating unit is tested for impairment, an enterprise considers any goodwill that is associated with the future cash flows to be generated by the cash-generating unit. If goodwill can be allocated on a reasonable and consistent basis, an enterprise applies the ‘bottom-up’ test only. If it is not possible to allocate goodwill on a reasonable and consistent basis, an enterprise applies both the ‘bottom-up’ test and ‘top-down’ test (see Example 7 given in the Appendix).

    81. The ‘bottom-up’ test ensures that an enterprise recognises any impairment loss that exists for a cash-generating unit, including for goodwill that can be allocated on a reasonable and consistent basis. Whenever it is impracticable to allocate goodwill on a reasonable and consistent basis in the
    ‘bottom-up’ test, the combination of the ‘bottom-up’ and the ‘top-down’ testensures that an enterprise recognises:

    (a) first, any impairment loss that exists for the cash-generating unit excluding any consideration of goodwill; and

    (b) then, any impairment loss that exists for goodwill. Because an enterprise applies the ‘bottom-up’ test first to all assets that may be impaired, any impairment loss identified for the larger cashgenerating unit in the ‘top-down’ test relates only to goodwill allocated to the larger unit.


    82. If the ‘top-down’ test is applied, an enterprise formally determines the recoverable amount of the larger cash-generating unit, unless there is persuasive evidence that there is no risk that the larger cash-generating unit is impaired.
    Last edited by Accounting Standards; 11-08-2010 at 12:38 PM.

  5. #15
    Accounting Standards
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    Default Corporate Assets of Accounting Standard (AS) 28 – Impairment of Assets

    Corporate Assets of Accounting Standard (AS) 28 – Impairment of Assets


    83. Corporate assets include group or divisional assets such as the building of a headquarters or a division of the enterprise,EDP equipment or a research centre. The structure of an enterprise determines whether an asset meets the definition of corporate assets (see paragraph 4) for a particular cash- generating unit. Key characteristics of corporate assets are that they do not generate cash inflows independently from other assets or groups of assets and their carrying amount cannot be fully attributed to the cashgenerating unit under review.


    84. Because corporate assets do not generate separate cash inflows, the recoverable amount of an individual corporate asset cannot be determined unless management has decided to dispose of the asset. As a consequence, if there is an indication that a corporate asset may be impaired, recoverable amount is determined for the cash-generating unit to which the corporate asset belongs, compared to the carrying amount of this cash-generating unit and any impairment loss is recognised in accordance with paragraph 87.

    85. In testing a cash-generating unit for impairment, an enterprise should identify all the corporate assets that relate to the cash-generating unit under review. For each identified corporate asset, an enterprise should then apply paragraph 78, that is:

    (a) if the carrying amount of the corporate asset can be allocated on a reasonable and consistent basis to the cash-generating unit under review, an enterprise should apply the ‘bottomup’ test only; and

    (b) if the carrying amount of the corporate asset cannot be allocated on a reasonable and consistent basis to the cashgenerating unit under review, an enterprise should apply both the ‘bottom-up’ and ‘top-down’ tests.


    86. An example of how to deal with corporate assets is given as Example 8 in the Appendix.
    Last edited by Accounting Standards; 11-08-2010 at 12:39 PM.

  6. #16
    Accounting Standards
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    Default Impairment Loss for a Cash-Generating Unit of Accounting Standard (AS) 28 – Impairment of Assets

    Impairment Loss for a Cash-Generating Unit of Accounting Standard (AS) 28 – Impairment of Assets


    87. An impairment loss should be recognised for a cash-generating unit if, and only if, its recoverable amount is less than its carrying amount. The impairment loss should be allocated to reduce the
    carrying amount of the assets of the unit in the following order:


    (a) first, to goodwill allocated to the cash-generating unit (if any); and

    (b) then, to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit. These reductions in carrying amounts should be treated as impairment losses on individual assets and recognised in accordance with paragraph 58.


    88. In allocating an impairment loss under paragraph 87, the carrying amount of an asset should not be reduced below the highest of:

    (a) its net selling price (if determinable);
    (b) its value in use (if determinable); and
    (c) zero.

    The amount of the impairment loss that would otherwise have been allocated to the asset should be allocated to the other assets of the unit on a pro-rata basis.

    89. The goodwill allocated to a cash-generating unit is reduced before reducing the carrying amount of the other assets of the unit because of its nature.


    90. If there is no practical way to estimate the recoverable amount of each individual asset of a cash-generating unit, this Statement requires the allocation of the impairment loss between the assets of that unit other than goodwill on a pro-rata basis, because all assets of a cash-generating unit work together.

    91. If the recoverable amount of an individual asset cannot be determined (see paragraph 65):

    (a) an impairment loss is recognised for the asset if its carrying amount is greater than the higher of its net selling price and the results of the allocation procedures described in paragraphs 87 and 88; and

    (b) no impairment loss is recognised for the asset if the related cashgenerating unit is not impaired. This applies even if the asset’s net selling price is less than its carrying amount. Example A machine has suffered physical damage but is still working, although not as well as it used to. The net selling price of themachine is less than its carrying amount. The machine does not generate independent cash inflows from continuing use. The smallest identifiable group of assets that includes the machine and generates cash inflows from continuing use that are largely independent of the cash inflows fromother assets is the production line to which the machine belongs. The recoverable amount of the production line shows that the production line taken as a whole is not impaired.

    Assumption 1: Budgets/forecasts approved by management reflect no commitment of management to replace the machine. The recoverable amount of the machine alone cannot be estimated
    since the machine’s value in use:


    (a) may differ from its net selling price; and
    (b) can be determined only for the cash-generating unit to

    which the machine belongs (the production line). The production line is not impaired, therefore, no impairment loss is recognised for the machine. Nevertheless, the enterprise may need to reassess the depreciation period or the depreciation method for the machine. Perhaps, a shorter depreciation period or a faster depreciation method is required to reflect the expected remaining useful life of the machine or the pattern in which economic benefits are consumed by the enterprise.

    Assumption 2: Budgets/forecasts approved by management reflect a commitment of management to replace the machine and sell it in the near future. Cash flows from continuing use of the machine
    until its disposal are estimated to be negligible. The machine’s value in use can be estimated to be close to its net selling price. Therefore, the recoverable amount of the machine can be determined and no consideration is given to the cashgenerating unit to which the machine belongs (the production line). Since the machine’s net selling price is less than its carrying amount, an impairment loss is recognised for the machine.

    92. After the requirements in paragraphs 87 and 88 have been applied, a liability should be recognised for any remaining amount of an impairment loss for a cash-generating unit if that is required by another Accounting Standard.
    Last edited by Accounting Standards; 11-08-2010 at 12:39 PM.

  7. #17
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    Default Reversal of an Impairment Loss of Accounting Standard (AS) 28 – Impairment of Assets

    Reversal of an Impairment Loss of Accounting Standard (AS) 28 – Impairment of Assets


    93. Paragraphs 94 to 100 set out the requirements for reversing an impairment loss recognised for an asset or a cash-generating unit in prior accounting periods. These requirements use the term ‘an asset’ but apply equally to an individual asset or a cash-generating unit.Additional requirements
    are set out for an individual asset in paragraphs 101 to 105, for a cashgenerating unit in paragraphs 106 to 107 and for goodwill in paragraphs 108 to 111.


    94. An enterprise should assess at each balance sheet date whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased. If any such indication exists, the enterprise should estimate the recoverable amount of that asset.


    95. In assessing whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased, an enterprise should consider, as a minimum, the following indications:

    External sources of information

    (a) the asset’s market value has increased significantly during the period;

    (b) significant changes with a favourable effect on the enterprise have taken place during the period, or will take place in the near future, in the technological, market, economic or legal
    environment in which the enterprise operates or in the market to which the asset is dedicated;

    (c) market interest rates or other market rates of return on investments have decreased during the period, and those decreases are likely to affect the discount rate used in calculating the asset’s value in use and increase the asset’s recoverable amount materially;

    Internal sources of information

    (d) significant changes with a favourable effect on the enterprise have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, the asset is used or is expected to be used. These changes include capital expenditure that has been incurred during the period to improve or enhance an asset in excess of its originally assessed standard of performance or a commitment to discontinue or restructure the operation to which the asset belongs; and

    (e) evidence is available from internal reporting that indicates that the economic performance of the asset is, or will be, better than expected.


    96. Indications of a potential decrease in an impairment loss in paragraph 95 mainly mirror the indications of a potential impairment loss in paragraph 8. The concept of materiality applies in identifying whether an impairment loss recognised for an asset in prior accounting periods may need to be reversed and the recoverable amount of the asset determined.


    97. If there is an indication that an impairment loss recognised for an asset may no longer exist or may have decreased, this may indicate that the remaining useful life, the depreciation (amortisation) method or the residual value may need to be reviewed and adjusted in accordance with the
    Accounting Standard applicable to the asset, even if no impairment loss is reversed for the asset.

    98. An impairment loss recognised for an asset in prior accounting periods should be reversed if there has been a change in the estimates of cash inflows, cash outflows or discount rates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If this
    is the case, the carrying amount of the asset should be increased to its recoverable amount. That increase is a reversal of an impairment loss.

    99. A reversal of an impairment loss reflects an increase in the estimated service potential of an asset, either from use or sale, since the date when an enterprise last recognised an impairment loss for that asset. An enterprise is required to identify the change in estimates that causes the increase in estimated service potential. Examples of changes in estimates include:

    (a) a change in the basis for recoverable amount (i.e., whether recoverable amount is based on net selling price or value in use);

    (b) if recoverable amount was based on value in use: a change in the amount or timing of estimated future cash flows or in the discount rate; or

    (c) if recoverable amount was based on net selling price: a change in estimate of the components of net selling price.


    100. An asset’s value in use may become greater than the asset’s carrying amount simply because the present value of future cash inflows increases as they become closer. However, the service potential of the asset has not increased. Therefore, an impairment loss is not reversed just because of the passage of time (sometimes called the ‘unwinding’ of the discount), even if the recoverable amount of the asset becomes higher than its carrying amount.
    Last edited by Accounting Standards; 11-08-2010 at 12:40 PM.

  8. #18
    Accounting Standards
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    Default Reversal of an Impairment Loss for an Individual Asset of Accounting Standard (AS) 28 – Impairment of Assets

    Reversal of an Impairment Loss for an Individual Asset of Accounting Standard (AS) 28 – Impairment of Assets


    101. The increased carrying amount of an asset due to a reversal of an impairment loss should not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting periods.


    102. Any increase in the carrying amount of an asset above the carrying amount thatwould have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting periods is a revaluation. In accounting for such a revaluation, an enterprise applies the Accounting Standard applicable to the asset.


    103. A reversal of an impairment loss for an asset should be recognised as income immediately in the statement of profit and loss, unless the asset is carried at revalued amount in accordance with another Accounting Standard (see Accounting Standard (AS) 10, Accounting for Fixed Assets) in which case any reversal of an impairment loss on a revalued asset should be treated as a revaluation increase under that Accounting Standard.

    104. Areversal of an impairment loss on a revalued asset is credited directly to equity under the heading revaluation surplus. However, to the extent that an impairment loss on the same revalued asset was previously recognised as an expense in the statement of profit and loss, a reversal of that impairment loss is recognised as income in the statement of profit and loss.

    105. After a reversal of an impairment loss is recognised, the depreciation (amortisation) charge for the asset should be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.
    Last edited by Accounting Standards; 11-08-2010 at 12:40 PM.

  9. #19
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    Default Reversal of an Impairment Loss for a Cash-Generating Unit of Accounting Standard (AS) 28 – Impairment of Assets

    Reversal of an Impairment Loss for a Cash-Generating Unit of Accounting Standard (AS) 28 – Impairment of Assets


    106. A reversal of an impairment loss for a cash-generating unit should be allocated to increase the carrying amount of the assets of the unit in the following order:

    (a) first, assets other than goodwill on a pro-rata basis based on the carrying amount of each asset in the unit; and

    (b) then, to goodwill allocated to the cash-generating unit (if any), if the requirements in paragraph 108 are met.


    These increases in carrying amounts should be treated as reversals of impairment losses for individual assets and recognised in accordance with paragraph 103.


    107. In allocating a reversal of an impairment loss for a cashgenerating unit under paragraph 106, the carrying amount of an asset should not be increased above the lower of:

    (a) its recoverable amount (if determinable); and

    (b) the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting periods.


    The amount of the reversal of the impairment loss that would otherwise have been allocated to the asset should be allocated to the other assets of the unit on a pro-rata basis.
    Last edited by Accounting Standards; 11-08-2010 at 12:41 PM.

  10. #20
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    Default Reversal of an Impairment Loss for Goodwill of Accounting Standard (AS) 28 – Impairment of Assets

    Reversal of an Impairment Loss for Goodwill of Accounting Standard (AS) 28 – Impairment of Assets

    108. As an exception to the requirement in paragraph 98, an impairment loss recognised for goodwill should not be reversed in a subsequent period unless:

    (a) the impairment loss was caused by a specific external event of an exceptional nature that is not expected to recur; and

    (b) subsequent external events have occurred that reverse the effect of that event.

    109. Accounting Standard (AS) 26, Intangible Assets, prohibits the recognition of internally generated goodwill.Any subsequent increase in the recoverable amount of goodwill is likely to be an increase in internally generated goodwill, unless the increase relates clearly to the reversal of the
    effect of a specific external event of an exceptional nature.

    110. This Statement does not permit an impairment loss to be reversed for goodwill because of a change in estimates (for example, a change in the discount rate or in the amount and timing of future cash flows of the cashgenerating unit to which goodwill relates).

    111. A specific external event is an event that is outside of the control of the enterprise. Examples of external events of an exceptional nature include new regulations that significantly curtail the operating activities, or decrease the profitability, of the business to which the goodwill relates.
    Last edited by Accounting Standards; 11-08-2010 at 12:42 PM.

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