In Accordance with IAS 36, an asset is said to have been impaired when the carrying amount of the asset is greater than its recoverable value. This standard prescribes the disclosure requirements of impairment.
There are instances where an asset originally impaired would be revalued to a value higher than the previous carrying amount at a later date. IAS 36 specifies that when such events or circumstances occur the initial impairment is reversed but not beyond the original carrying amount of the asset before initial impairment.
Let’s look at a practical scenario
XYZ LTD has a class of PPE whose carrying amount was #35million tested for impairment in 2020, it was discovered that the carrying amount was way above the recoverable value at their date by #10million. The carrying amount of the assets were restated to #25million after applying impairment.
In 2021 there was a significant turnaround in the value of the previously impaired PPE.
Upon reversing the impairment initially recognized the carrying amount of the class of PPE must not be restated above #35million which was the value of the asset before the previous impairment.