Property, plant and equipment schedules template includes a line labeled as \u201cRevaluation surplus\u201d. It may however not always be surplus and may be a negative in the form of a charge. In the accounting and IFRS it\u2019s called an impairment charge. To start off with impairment one needs to understand when impairment is initially charged and why is it?
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\nInitially assets are divided into two groups, besides tangible and intangible, into definite and indefinite useful life assets. When the indefinite useful life assets are not amortized, they are tested for impairment annually. Every other asset is tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the indefinite useful life assets are tested annually meaning that you do not necessarily need to think about conditions and specific circumstances, the impairment of other assets needs to be tested whenever specific conditions arise. Those conditions are decrease in revenues, closure of product lines, decrease in margins, increase in interest rates, changes in regulation affecting sales etc. There may very well be other conditions, but the main and general rule is that when the revenue or cost decrease originally meant to rise from the use of the asset, decreases, there\u2019s a possible room for impairment charge. When you have understood that impairment charge needs to be recognized then you have to answer to the question of \u201cin what amount?\u201d As a rule the impairment loss is recognized for the amount by which the asset\u2019s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset\u2019s fair value less costs to sell and value in use.<\/p>\n
If impairment is there, it needs to be recognized. The Property, plant and equipment schedule template is enabling you to take into account the charge and as impairment can be reversed for every other asset than goodwill a surplus may very well be recognized in coming years. That is when those conditions and circumstances reverse.<\/p>\n
The Property, plant and equipment schedule template includes various changes that can happen to an asset so we\u2019ll cover them in more detail in our future posts.<\/p>\n