[Anonymous]

Guys I am referring to Becker Passmaster CPA 07060

A company reporting under IFRS holds a position in BE Corp. bonds that it classifies as available for sale. In the previous yr 1, the company recorded an impairment loss related to the bonds. In the current year (yr 2), the company reversed a portion of the impairment loss. How should the company account for the impairment loss reversal in its current year financial statement?

A. Book the reversal to the current year’s OCI.

B. Recognize the reversal the current year’s income statement.

C. Recognize the increase as an adjustment to the previous year’s income statement.

D. Book the increase as an adjustment to the previous year’s OCI.

Answer is B.

My Confusion: In year 1 when an available for sale security suffers a loss, we recognize the unrealized loss in OCI (PUFE). When we want to reverse the loss in Yr 2, my understanding is the recovery of loss should be adjusted to OCI in current year (which is answer A in the above options) up to the amount suffered as loss. According to becker explanation, Under IFRS, reversals of impairment losses are allowed and the increase would be booked to the current year’s income statement.

My question if it is so, since under GAAP reversals are not allowed what it would have been if the company was using GAAP????

What it would have been (under both GAAP and IFRS) if the question had mentioned the company suffered a temporary loss (instead of impairment loss) which was recovered in Yr 2? What will be the accounting treatment for both under US GAAP and IFRS?

Some one please shed some light! Very confused! 🙁

[lbi18]

@cpa_man

The reason why you book the reversal of the impairment loss to the current year's income statement under IFRS is because well, it was an impairment loss…NOT an unrealized loss. So, in Year 1, there wasn't an impact on OCI, so there's no need to adjust it. You're right in saying that an unrealized loss on this AFS security would be reflected in OCI, but an impairment loss is not the same thing as an unrealized loss. Nevertheless, impairment losses are always booked on the Income Statement – this is true for GAAP and IFRS.

Under GAAP and IFRS, temporary holding losses would be reported in OCI for available for sale securities. However, with IFRS, if it is a foreign exchange gain/loss on AFS bonds, the gain or loss would be reported in the Income Statement. Other than temporary losses (i.e. permanent) would be reported in the Income Statement.

FAR - 85
AUD - 99
REG - 85
BEC - 10/4/13 (Waiting)

Using Becker Self-Study

[Anonymous]

Thanks lbi18…:)

[HushPuppy]

Wait a sec, guys, this doesn't seem right (sorry to bring up an old question, I was having trouble w/ CPA-07060 as well). Maybe I am reading this wrong. The answer in Becker does say you should recognize the reversal of the previously applied impairment via the CY income statement. But this response doesn't seem right…

When I went back into the book (FAR – Exams after 12/31/14), Page F3-6 as a GAAP vs. IFRS note towards the bottom of the page, just under “D. Impairment of Securities” which refers the reader to F10, Topic 10, Outline point X (Which is F10-53 in my book). This page states that, under IFRS, financial assets that are measured at fair value (ie – Available for Sale) through OCI, the impairment losses or the reversal of previously recognized impairment losses should be recognized in other comprehensive income.

So either the book, or the question is wrong. Unless I am reading something incorrectly. Any help would be appreciated…

[Author]

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