If impairment is recognised and the asset had previously been revalued upwards, which account may be debited in addition to the Impairment Loss?

If impairment is recognised and the asset had previously been revalued upwards, which account may be debited in addition to the Impairment Loss?

• A. Revaluation Reserve
• B. Impairment Loss (SPLOCI)
• C. Asset
• D. Deferred Tax

Answer: (A)

When an asset has been carried at a revalued amount, any impairment is handled by using the existing upward revaluation surplus first. That surplus sits in the Revaluation Reserve. If impairment occurs, the loss is allocated to reduce that reserve before it affects profit or loss. So, in the journal entries you would debit the Revaluation Reserve to the extent of the available surplus, and debit Impairment Loss for any remaining amount, with a credit to the asset to reduce its carrying amount by the total impairment. For example, if the asset is impaired by 100 and the Revaluation Reserve for that asset is 60, you would debit Revaluation Reserve 60 and debit Impairment Loss 40, then credit Asset 100. If the impairment were only 40, you would debit Revaluation Reserve 40 and credit Asset 40, with no Impairment Loss recognized in profit or loss. The key idea is that the Revaluation Reserve absorbs part of the impairment, preserving the P&L impact for only the excess impairment.

When an asset has been carried at a revalued amount, any impairment is handled by using the existing upward revaluation surplus first. That surplus sits in the Revaluation Reserve. If impairment occurs, the loss is allocated to reduce that reserve before it affects profit or loss. So, in the journal entries you would debit the Revaluation Reserve to the extent of the available surplus, and debit Impairment Loss for any remaining amount, with a credit to the asset to reduce its carrying amount by the total impairment.

For example, if the asset is impaired by 100 and the Revaluation Reserve for that asset is 60, you would debit Revaluation Reserve 60 and debit Impairment Loss 40, then credit Asset 100. If the impairment were only 40, you would debit Revaluation Reserve 40 and credit Asset 40, with no Impairment Loss recognized in profit or loss. The key idea is that the Revaluation Reserve absorbs part of the impairment, preserving the P&L impact for only the excess impairment.