Revaluation and impairment of assets

mashfaq · 02-10-2011, 08:18 PM

What is the difference between revaluation and impairment of asset,

Dard · 02-10-2011, 08:53 PM

Revaluation is an increase in the fair value of an asset. An asset is revalued to bring into the books the fair market value of an asset.
Impairement is a reduction in the value of an asset. It's the excess of carrying value over the asset's value-in-use

[email protected] · 02-13-2011, 01:48 AM

Dear Both!
AOA

As i understand as per IAS -36 Recoverable amounts is those which ever is higher (FV Less cost to sell or Value in use). on this basis i would like to understand the following query.

Dear Mr. Dard.

As u post that Impairment loss is the excess of CV over the assets value in use. My question is that if the asset is not yet used in the company so it has no any vale in use.Mence company has not yet decided the plan of production of subsequent 3 years. so the assets has not any value in use.

So, How can we test this assets for impairment????

Can we compare the CV with FV less cost of disposal? i Understand that it is best way because asset is trade in market.

Plx comments

Regards

Umar

Dard · 02-13-2011, 03:54 AM

Sorry, impairement is the excess of CARRYING VALUE OVER IT'S RECOVERABLE AMOUNT. Recoverable amount is the higher of value in use and fair value less costs to sell.

Dard · 02-13-2011, 04:07 AM

Value-in-use should be calculated after taking into account the whole useful life of the asset, not just first few years

bilalfca · 02-14-2011, 02:24 AM

Salam to all.
Dear Mr Umer, i would like to tell you that when a co. decides to purchase an asset, it makes a budget known as Capital Budget. in that, the co. estimates the VIU & all the related probs. so its certain that when an asset is purchased, a co. has estimated VIU of that asset. the co. will compare VIU with FMV less Cost to sell & take higher one as RA.
compare RA & BV & proceed................
the basic point is that VIU is estimated before an asset is purchased...
n one more thing, why will a co. purchased an asset & then doesn't use that for next 3years?
any ground reasons?

Schuaeb · 02-14-2011, 05:16 AM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by bilalfca
 Salam to all.
Dear Mr Umer, i would like to tell you that when a co. decides to purchase an asset, it makes a budget known as Capital Budget. in that, the co. estimates the VIU & all the related probs. so its certain that when an asset is purchased, a co. has estimated VIU of that asset. the co. will compare VIU with FMV less Cost to sell & take higher one as RA.
compare RA & BV & proceed................
the basic point is that VIU is estimated before an asset is purchased...
n one more thing, why will a co. purchased an asset & then doesn't use that for next 3years?
any ground reasons?
<hr height="1" noshade id="quote"></blockquote id="quote">
There may be a case where value in use of an asset cannot be estimated. And also there may be situations where an asset is not put to use as it was intended to before purchasing, there could be many reasons for such situation to arise.

IAS 36, Impairment of Assets, clearly explains that where the VIU of an individual asset cannot be determined as it doesn't produce independent cash flow, VIU of the Cash Generating Unit should be used in calculating impairment if any. If required it can be explained further. So there may not be a situation where VIU of an asset or CGU cannot be determined. And if no smaller CGU can be identified whole of the company or operation should be considered for calculating impairment.

Impairment and revaluation decrease may be a bit confusing. Assets measured at cost model are impaired and assets at revaluation model (any previous surplus is booked) are revalued for any decrease in value. Impairment is charged to statement of comprehensive income, however, in case of revaluation decrease only the amount in excess of revaluation gain of that particular asset is charged the rest is adjusted against the revaluation surplus.

[email protected] · 02-14-2011, 05:42 AM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by mashfaq
 What is the difference between revaluation and impairment of asset,
<hr height="1" noshade id="quote"></blockquote id="quote">

Salaaam to awl!

Thanx Mr. Schuaeb & bilalfce for comments.

Yar reason can any thing for situation like company wants to transfer its branch where the plant will be use. So, the company if decided the production plans then first year cash flows can not generate revenue hence the value in use shall not be determind for first year ( if am rite), I think company should compare its FV less cost to sell for impairment purpose??

regards

Umar

Schuaeb · 02-15-2011, 02:01 AM

Dear Umar

The value in use of an asset is determined by discounting the cash flows (net) for the whole useful life of the asset including anticipated disposal proceeds if any. In the situation you've mentioned the cash inflows from the first year should be taken as nil and the inflows from the rest of the useful life will be considered while calculating VIU. So, in this case also recoverable amount will be higher of Net Selling Value and VIU.

Regards
Shoaib

bilalfca · 02-15-2011, 03:28 AM

salam
i've really enjoyed this fruitful discussion.
now, can any plz discuss/share info about Desktop Revaluation!!
what is it? is it prohibited in IAS-16 etc........................
thankx

[email protected] · 02-15-2011, 04:09 AM

Dear Shaoib bhai!

Thank you so much i have computed an example for VIU after reading your comments for my clarification and ur comments has very helped full for my understanding, thanx also to bilalfcs.

regards

Umar

bilalfca · 02-16-2011, 02:59 AM

Dear Scheaeb
i've a question about VIU
if a co has purchased an asset in year 2010, say at the start, and doesn't use it (plz keep technical obsolescence of the asset in mind) coz of any reason, does it mean that asset doesn't have a VIU for year 2010 if
Case 1 the co. intalled that asset but the asset remained idle in 2010
Case 2 the co. has not installed that and the asset is in that condition in which it was originally purchased.
plz elaborate bothe scenarios.

Regards.

Dard · 02-16-2011, 04:14 AM

Assuming a 10 years useful life.
In both the scenarios, value-in-use shall be determined taking into account the cash flows generated by the use of the asset, (years 2011-2019), and discounted back to present value

Rithika · 02-16-2011, 04:11 PM

Both the revaluation and impairment are the related terms in accounting assets. When an asset is re-valuated it may either get incremented or decremented, resulting in the change of the carrying value. But when the impairment occurs, the economic value may fall below the carrying value which might not be recovered. Impairment is the statement of current carrying value.

bilalfca · 02-17-2011, 01:07 AM

Dear Dard!

i just want a clarification, in both scenarios, does it mean that VIU for year 2010 is nil (if the asset is purchased in 2010)?

suppose that asset is a Vehicle. now, if that vehicle was not used in 2010, does it mean the Vehicle doesn't has a VIU?

one more thing, m junior in accountancy. plz explain it

Regards.