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The AASB in 2004 released a 106 pages accounting standard relating to impairment of assets. The AASB 136 is applicable to the annual reporting on or after 1 January 2005. The key feature of the AASB 136 is that it will replace the accounting standard AASB 1010 that is applied for recoverable amount of non-current assets (Kabir and Rahman 2016). In case of profit, entities that company with AASB 136 it will simultaneously comply with the IAS 136. This standard is applicable to all the entities that are required to prepare the financial statement as per the corporation act. It should be noted that this standard is applicable to most of assets except certain assets like financial obligation, inventories, deferred tax assets and others.
The Para 6 of the standard defines Impairment loss as the amount by which the recoverable amount is lower than the carrying amount of the assets. The recoverable amount is determined by comparing the value in use with the fair value after deducting the cost to sell. It is provided in Para 9 that an entity is required to assess at the end of the reporting period whether there is an indication for the impairment of the assets. If there is such indication then the entity will be required to determine the recoverable amount of the assets (Sun and Zhang 2017). However, it should be noted that as per Para 10 irrespective of the indication the test for impairment shall be conducted for intangible assets with indefinite useful life and the goodwill acquired in the business combination. The Para 12 provides that an entity should consider minimum of the following indication for assessing whether the assets is impaired:
The Para 59 of the standard provides that it is required by an entity to reduce the carrying amount of the assets to its recoverable amount if the recoverable amount is less. The reduction in the amount is treated as the impairment loss. It is stated in Para 60 that the loss on impairment should be immediately recognized in the profit or loss statement (Gordon and Hsu 2016). In case of the assets that have impairment loss that is greater than the carrying mount of the assets then the entity is required to recognize the liability as per Para 62. It should be noted that as per Para 63 after the recognition of the impairment loss then the depreciation charge is adjusted so that the revised carrying amount can be allocated to the remaining useful life of the assets.
The Para 110 to 116 of the AASB 136 provides the requirement relating to the reversal of the impairment loss. It is provided that an entity should make assessment at the reporting date whether the impairment loss recognized in the previous year has reduced or n longer exists. If it is seen that there is an indication that such possibility exist then the entity will make assessment for the recoverable amount of the assets (Peterson 2015). It is provided in Para 114 that the loss on impairment that is recognized in the previous year for an assets other than the goodwill should be reversed if there is an indication that there has been a change in the recoverable amount of the assets since the recognition of the impairment loss. Therefore, it can be said that the carrying amount of the assets should be increased to the recoverable amount. This process of increasing the carrying amount of the assets to its recoverable amount is termed as the reversal of an impairment loss.
The Para 119 of the AASB 136 states that the reversal in the impairment loss other the goodwill should be recognized immediately in the statement of the profit or loss. In case of revalued assets, the reversal in the impairment loss should be treated against the revalued amount. The Para 121 states that after the reversal of impairment loss is recognized then the depreciation charge should be adjusted for the carrying amount (Andersson and Wenzel 2014). The entity is required to make a disclosure of the amount of reversal in the amount loss that have been recognized in the profit or loss statement. The amount of the reversal in the impairment loss that have been recognized immediately directly to the equity during the period should be recognized. In case of material impairment, the entity is required to disclose the events or circumstances that lead to the reversal of the impairment loss. The amount of the loss that have been reversed should be disclosed in the financial statement (Kowalski et al. 2016).
Therefore based on the above discussion it can be said that the reversal of the impairment loss of an asset should be recognized in the profit or loss statement. The reversal in the impairment loss and the appropriate accounting helps the entity to provide correct view of the financial position of the company.
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