When can an impairment loss be reversed under IAS 36?

Core rule Under IAS 36 Impairment Reversal Rules, an impairment loss recognised in a prior period must be reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment was recognised — but the reversed carrying amount cannot exceed what the depreciated historical cost would have been had no impairment ever been recorded, and goodwill impairment is never reversible. How it works - Triggering the reversal assessment (IAS 36.110): At each reporting date, an entity must assess whether there is any indication that a previously impaired asset may have recovered in value. The same external and internal indicators used to identify impairment (IAS 36.12) are applied in reverse — e.g., a significant rise in market values, improved economic environment, or higher-than-expected cash flows from the asset. - Recoverable amount must be recalculated (IAS 36.114): If indicators of recovery exist, the entity formally estimates the recoverable amount (higher of fair value less costs of disposal and value in use). Only if recoverable amount now exceeds the current carrying amount does a reversal arise. - Ceiling on the reversal (IAS 36.117): The increased carrying amount cannot exceed the depre

How is the depreciated historical cost ceiling calculated for an asset that has undergone multiple impairments in different periods?

ciated carrying amount that would have been recognised had the original impairment loss never been charged. This cap prevents entities from using reversals to write assets up above their original cost trajectory. - Income statement vs. revaluation model (IAS 36.119–120): For assets carried under the cost model, the reversal is recognised in profit or loss. For assets under the revaluation model (e.g., IAS 16 or IAS 38 revalued assets), the reversal is treated as a revaluation increase — credited to other comprehensive income (OCI) to the extent it reverses a previous revaluation decrease charged to OCI, with any excess going to profit or loss. - Depreciation adjustment post-reversal (IAS 36.121): Once the reversal is booked, the revised (higher) carrying amount becomes the new depreciable base. Depreciation charges must be adjusted prospectively over the asset's remaining useful life. - Cash-generating units (IAS 36.122–123): When reversing an impairment allocated to a CGU, the increase is allocated pro rata to individual assets (excluding goodwill), subject to the individual asset ceiling in IAS 36.117. No part of the reversal is allocated to goodwill within the CGU. - Absolute prohibition on goodwill reversal (IAS 36.124): An impairment loss on goodwi

If an asset is subsequently reclassified from the cost model to the revaluation model, how does that affect the treatment of any future impairment reversal under IAS 36.119?

ut applying the IAS 36.117 cap. The ceiling is the depreciated carrying amount as if the impairment never happened — failing this check overstates assets and profits. - Allocating reversal to goodwill in a CGU: When a CGU recovers, finance teams sometimes spread the reversal across all assets including goodwill. IAS 36.122 explicitly prohibits any allocation to goodwill; the reversal flows only to the other assets on a pro-rata basis, subject to individual ceilings. - Confusing "change in estimate" with "error correction": A reversal is prospective and based on new estimates (IAS 36.114). If the original impairment was itself an accounting error, IAS 8 (restatement) applies instead — a different standard, different mechanics, and different disclosures. Key paragraphs to know - IAS 36.110 — obligation to assess reversal indicators at each reporting date - IAS 36.114 — requirement to formally estimate recoverable amount when indicators exist - IAS 36.117 — ceiling: carrying amount cannot exceed depreciated historical cost - IAS 36.119–120 — P&L vs. OCI treatment depending on measurement model - IAS 36.122–123 — pro-rata allocation of CGU reversal to individual assets (excluding goodwill) - IAS 36.124 — absolute prohibition on reversal of goodwill impairme

IAS 36 Impairment Reversal Rules

Q: When reversing a CGU impairment that was partially allocated across five assets, how do you apply the individual asset ceilings on a pro-rata basis?

ll cannot be reversed in any subsequent period, because any increase in recoverable amount post-impairment is presumed to be the recognition of internally generated goodwill, which IAS 38 prohibits. Practical example A manufacturing entity impaired a piece of equipment by €300,000 at 31 December 20X2. Its carrying amount fell from €900,000 to €600,000. At 31 December 20X4, improved market conditions indicate recovery. Remaining useful life at that date: 6 years. The depreciated historical cost (had no impairment occurred) would have been €600,000 (original €900,000 less 4 years' depreciation at €75,000/year = €900,000 − €300,000). The recoverable amount is now assessed at €650,000. Reversal permitted = min(€650,000 recoverable amount − €500,000 current carrying amount; €600,000 ceiling − €500,000 current carrying amount) = min(€150,000; €100,000) = €100,000. Journal entry at 31 December 20X4: | Account | Dr (€) | Cr (€) | |---|---|---| | Property, Plant & Equipment | 100,000 | | | Impairment Reversal (P&L) | | 100,000 | Going forward, the revised carrying amount of €600,000 is depreciated over the remaining 6 years: €100,000/year. Common pitfalls - Ignoring the depreciated-cost ceiling: Practitioners often reverse up to the full recoverable amount witho

IAS 36 Impairment — Core Rule

Under IAS 36 Impairment Reversal Rules, an impairment loss recognised in a prior period must be reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment was recognised — but the reversed carrying amount cannot exceed what the depreciated historical cost would have been had no impairment ever been recorded, and goodwill impairment is never reversible.

How IAS 36 Impairment Works

Triggering the reversal assessment (IAS 36.110): At each reporting date, an entity must assess whether there is any indication that a previously impaired asset may have recovered in value. The same external and internal indicators used to identify impairment (IAS 36.12) are applied in reverse — e.g., a significant rise in market values, improved economic environment, or higher-than-expected cash flows from the asset.

Recoverable amount must be recalculated (IAS 36.114): If indicators of recovery exist, the entity formally estimates the recoverable amount (higher of fair value less costs of disposal and value in use). Only if recoverable amount now exceeds the current carrying amount does a reversal arise.

Ceiling on the reversal (IAS 36.117): The increased carrying amount cannot exceed the depreciated carrying amount that would have been recognised had the original impairment loss never been charged. This cap prevents entities from using reversals to write assets up above their original cost trajectory.

Income statement vs. revaluation model (IAS 36.119–120): For assets carried under the cost model, the reversal is recognised in profit or loss. For assets under the revaluation model (e.g., IAS 16 or IAS 38 revalued assets), the reversal is treated as a revaluation increase — credited to other comprehensive income (OCI) to the extent it reverses a previous revaluation decrease charged to OCI, with any excess going to profit or loss.

Depreciation adjustment post-reversal (IAS 36.121): Once the reversal is booked, the revised (higher) carrying amount becomes the new depreciable base. Depreciation charges must be adjusted prospectively over the asset's remaining useful life.

Cash-generating units (IAS 36.122–123): When reversing an impairment allocated to a CGU, the increase is allocated pro rata to individual assets (excluding goodwill), subject to the individual asset ceiling in IAS 36.117. No part of the reversal is allocated to goodwill within the CGU.

Absolute prohibition on goodwill reversal (IAS 36.124): An impairment loss on goodwill cannot be reversed in any subsequent period, because any increase in recoverable amount post-impairment is presumed to be the recognition of internally generated goodwill, which IAS 38 prohibits.

IAS 36 Impairment — Practical Example

A manufacturing entity impaired a piece of equipment by €300,000 at 31 December 20X2. Its carrying amount fell from €900,000 to €600,000. At 31 December 20X4, improved market conditions indicate recovery. Remaining useful life at that date: 6 years. The depreciated historical cost (had no impairment occurred) would have been €600,000 (original €900,000 less 4 years' depreciation at €75,000/year = €900,000 − €300,000). The recoverable amount is now assessed at €650,000.

Reversal permitted = min(€650,000 recoverable amount − €500,000 current carrying amount; €600,000 ceiling − €500,000 current carrying amount) = min(€150,000; €100,000) = €100,000.

Journal entry at 31 December 20X4

Account	Dr (€)	Cr (€)
Property, Plant & Equipment	100,000
Impairment Reversal (P&L)		100,000

Going forward, the revised carrying amount of €600,000 is depreciated over the remaining 6 years: €100,000/year.

IAS 36 Impairment — Common Pitfalls

Ignoring the depreciated-cost ceiling: Practitioners often reverse up to the full recoverable amount without applying the IAS 36.117 cap. The ceiling is the depreciated carrying amount as if the impairment never happened — failing this check overstates assets and profits.

Allocating reversal to goodwill in a CGU: When a CGU recovers, finance teams sometimes spread the reversal across all assets including goodwill. IAS 36.122 explicitly prohibits any allocation to goodwill; the reversal flows only to the other assets on a pro-rata basis, subject to individual ceilings.

Confusing "change in estimate" with "error correction": A reversal is prospective and based on new estimates (IAS 36.114). If the original impairment was itself an accounting error, IAS 8 (restatement) applies instead — a different standard, different mechanics, and different disclosures.

IAS 36 Impairment — Key Paragraphs

IAS 36.110 — obligation to assess reversal indicators at each reporting date
IAS 36.114 — requirement to formally estimate recoverable amount when indicators exist
IAS 36.117 — ceiling: carrying amount cannot exceed depreciated historical cost
IAS 36.119–120 — P&L vs. OCI treatment depending on measurement model
IAS 36.122–123 — pro-rata allocation of CGU reversal to individual assets (excluding goodwill)
IAS 36.124 — absolute prohibition on reversal of goodwill impairment