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

Under U.S. GAAP, impairment losses on assets held for use may not be restored.

Step-by-step solution

Meaning of Impairment       

The term "impairment" refersto 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 your business's financial statements above the maximum amount that could be recouped through its sale.

Explaining the situation to whether to record the recovery in value.

In the event of an impairment loss on an asset for use, the loss is recognized as an expense in the period of loss; if the decline in value is due to a previously revalued asset, the reduction in value is adjusted to reflect the reassessment value, and any remaining balance of loss is charged to expense.

When the impairment loss amount equals the amount recorded in the income statement for the previous period, the remaining revaluation balance is parked in the revaluation reserve for the same class of asset.

As a result, in the given situation, Wyeth Company has to park the increased amount of assets due to revaluation in the income statement and the balance in the revaluation reserve of the asset class.