[CPA Dex]

Can someone explain the meaning of these two statements? It seems like a contradiction:

Losses on fixed assets to be disposed of can be recovered due to changes in the fair value or selling costs associated with the asset.

Recoveries of previously recognized impairment losses may not be recognized in subsequent periods.

The first sentence is on 1 page of the Wiley book, and the other is on the very next page. Makes no sense.

[Anonymous]

I think the trick is that in the first instance, you are disposing of (selling) the asset. Therefore, assuming you've had to write it down in the past, you can gain on the sale.

In the second instance, you are being conservative (accounting-wise) by not being allowed to write up the asset after writing it down due to impairment losses, while it is still in your posession.

[Anonymous]

I am guessing that your second page refers to a fixed asset that is “held for use”

for GAPP, held for:

1. USE – restoration not permitted

2. DISPOSAL – restoration allowed

[Anonymous]

As per my understanding, under GAAP PP&E held for disposal are measured at lower of Cost or Net realizable value (fair value less cost to sell). PP&E carrying value is reduced and any subsequent recovery is allowed to be recognized to the extent not to exceed the original carrying value before the impairment. This is unlike the PP&E used in operation where recoveries of previously recognized impairment losses may not be recognized in subsequent period.

[Anonymous]

On second thought, they must be referring to classifying the asset as held for sale. You have the choice to write down the impaired asset OR classify it as an asset held for sale. Assets held for sale must be written down to fair value less selling costs. I suppose that conceivably the fair value less selling cost could be higher than your book value. Another consideration, if you just write down the asset as impaired, you can continue depreciating it, because you are still using it in your business.

[Anonymous]

Ali, you said it much better than me! thanks.

[Anonymous]

Ok, in addition to what i said, please note that depreciation is not allowed for the PP&E held for disposal/sale.

[Anonymous]

Also caution under IFRS I believe you can reverse an impairment loss (but not more than what the un-impaired carry value would have been). Anybody care to weigh in?

Are we having fun yet?

[Author]

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