Question

Ramirez Company has a held-for-collection investment in the 6%, 20-year bonds of Soto Company. The investment was originally purchased for \(1,200,000 in 2016. Early in 2017, Ramirez recorded an impairment of \)300,000 on the Soto investment, due to Soto’s financial distress. In 2018, Soto returned to profitability and the Soto investment was no longer impaired. What entry does Ramirez make in 2018 under (a) GAAP and (b) IFRS?

Short answer

Under IFRS, no entry of reversal of impairment will be passed. Under GAAP, debt investment debited by $300,000 and recovery of impairment loss is credited by $300,000.

Step-by-step solution

Reversal of impairment under GAAP

Date	Particulars	Debit	Credit
2018	Debt Investment	$300,000
	Recovery of impairment loss		$300,000
	(Being entry for the reversal of impairment)

Reversal of impairment under IFRS

IFRS does not permit any reversal of impairment on debt-for-collection investment. Hence, no entry will be passed.