Question

Last year, Wyeth Company recorded an impairment on an asset held for use. Recent appraisals indicate that the asset has increased in value. Should Wyeth record this recovery in value?

Short answer

Answer

Revalued assets must be reflected in Wyeth Company’s income statement and be taken into account in the revaluation reserve of the asset class.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Impairment

Impairment refers to a reduction of the market value of fixed or intangible assets, indicative of a reduction in the quantity, quality, or market value of an asset. The idea is that an asset should never be reported in a business's financial statements above the maximum amount that could be recouped through its sale.

Explaining the situation of Wyeth for recording the before value.

Impairment losses on plant and assets may be recovered under IFRS as long as the write-up does not exceed the carrying value prior to impairment.

Impairment loss on assets for use is recognized as an expense in the period of loss, and if the impairment loss relates to a revalued asset in the previous period, the damage loss will be adjusted to the extent of the reassessment value to reduce the asset value, with the remaining loss being charged as an expense.

If the impaired asset revalues in the next period, the impairment loss amount from the previous period is recorded in the income statement, and the remaining revaluation balance is parked in the same asset class's revaluation reserve.

In conclusion, Wyeth Company must park the increased amount of assets owing to revaluation in the income statement, with the balance in the asset class's revaluation reserve.