Accounting Standards are written paperss, policy paperss issued by adept accounting organic structure or by Government or other regulative organic structure covering the facets of acknowledgment, measuring, intervention, presentation and revelation of accounting minutess in the fiscal statements. Accounting Standards in India are issued by the Institute of Chartered Accountants of India. ( D.S.Rawat, 2010 )
Damage of Assets falls under Accounting Standard 28 ( AS 28 ) . A company may deduce economic benefits from an plus by either utilizing it or disposing it. It is better to utilize the plus if value in usage is more than the net merchandising monetary value or if the net merchandising monetary value is greater so it is more advisable that it is sold off. The net merchandising monetary value will so be the recoverable value of the plus. Assetss should non be mentioned over their recoverable values in fiscal statements. An plus, whose mentioned value in the fiscal statement is less than the recoverable sum, is said to be impaired. The decrease in value is the impairment loss. Harmonizing to Paragraph 6 of AS 28, before fixing a balance sheet, each company should look into whether any of their assets are impaired. If such is the instance, so as per Paragraph 58, the plus should be written down to its recoverable value and the impairment loss should be treated as an disbursal in the net income and loss history. ( Rakshit, 2007 )
As per ICAI, the pertinence of this Standard to other endeavors is as below:
The Standard comes into consequence in regard of accounting periods get downing on or after 1-4-2004 and is compulsory for Level I enterprises from such day of the month.
To Level II enterprises- from accounting periods get downing on or after 1.4.2006.
To Level III enterprises- from accounting periods get downing on or after 1.4.2008.
The accounting criterions apply merely to material points. Therefore, if there are impairment indexs or even existent damage losingss, but which are non material, so the AS-28 does non use to such points.
A company should fall back to measure whether an plus has been impaired or non by look intoing external and internal beginnings of information. The external factors include: –
An unusual or unnatural diminution in the market value of assets during the period under consideration.
When there are opportunities of unfavorable consequence on the endeavor due to impending alterations in technological, market, economic or legal environment in which the endeavor operates.
Addition in market involvement rates which may impact the price reduction rate to be applied in finding impairment losingss.
Transporting sum of net assets is more than its market capitalization.
The internal factors include: –
If an plus gets disused or suffers from physical harm.
Changes in mode of usage in instances of weaving up or restructuring of the endeavor.
Poor or sub-standard public presentation of the plus.
( Singhal, 2005 )
Accounting Treatment for Reversal of Impairment Loss ( D.S.Rawat, Students Guide to Accounting Standards, 2010 )
Reversal of Impairment Loss for Individual Asset: –
Measure 1: Calculation of sum of Impairment Loss = Recoverable Amount-Carrying Amount
Measure 2: Asset A/c Dr.
To Reversal of Impairment
Reversal of Impairment Dr.
To Profit & amp ; Loss A/c
( Bing reversal of impairment loss for plus to be treated as income )
[ Note: If plus is carried at revalued sum, reversal of impairment loss to be treated as reappraisal addition. After reversal, increased transporting sum of an plus should non transcend the transporting sum that would hold been determined had no impairment loss been recognised for the plus earlier. ]
Reversal of Impairment Loss for a Cash Generating Unit: –
Measure 1: Reversal of impairment loss should be allocated to increase the transporting sum of the assets of the unit.
Measure 2: Reversal of impairment loss to be treated as income.
Measure 3: After allotment of reversal of impairment loss, transporting sum should be increased lower of recoverable sum and the carrying sum that would hold been determined had no impairment loss been recognised.
Reversal of Impairment Loss for Goodwill
As per Para 108 of AS-28, impairment loss of good will should be reversed merely if impairment loss earlier recognised is non expected to happen once more and if a specific external event, which caused an impairment loss earlier, has reversed by another external event.
Disclosure to the Shareholders ( Singhal, Proffesional Approach to Accounting Standards, 2005 )
For each category of assets an endeavor is required to unwrap:
The sum of damage losingss recognised in the net income and loss statement during the period.
The sum of reversal of impairment losingss recognised in the net income and loss statement during the period.
The sum of damage losingss recognised straight against reappraisal excess during the period.
The sum of reversal of impairment losingss recognised straight against reappraisal excess during the period.
If an impairment loss for an person or a hard currency bring forthing unit is recognised or reversed is material, the undermentioned revelations are required: –
The events and fortunes that led to the acknowledgment or reversal of the impairment loss.
The sum of the impairment loss recognised or reversed.
For an single plus: the nature of single plus and reportable section to which it belongs.
For a hard currency bring forthing unit: description of CGU, sum of impairment loss recognised or reversed by category and reportable section and whether recoverable sum of an plus is its Net Selling Price or Value in Use and the footing of finding the merchandising monetary value or value in usage.
Impairment as a construct has ever been existing under assorted international accounting dictums, such as the International Accounting Standards ( now IFRS ) , US Statements on Financial Accounting Standards, etc. IAS addresses impairment related commissariats in IAS 36, and US GAAP in SFAS No. 144. The AS-28 issued by the ICAI is really similar to IAS 36. However, both AS-28 and IAS 36 differ from SFAS No. 144. The differences between Indian GAAP and IAS on the one manus, and US GAAP on the other, chiefly pertain to different attacks taken, as respects acknowledgment, measuring and reversal of impairment losingss. The application of AS-28/IAS 36 would ensue in damage losingss being recognised earlier, than under US GAAP. Another cardinal difference between AS-28/IAS 36, and SFAS No.144, is that under AS-28/IAS 36, reversal of antecedently recognized damage losingss is permitted, under certain fortunes. However, no reversal of impairment losingss is allowed under US GAAP.
The Standard has been issued by the Institute to convey it in line with the accounting patterns followed universe over. The criterion can be called a landmark criterion that moves the Indian accounting patterns from the traditional historical cost construct to a realizable value construct. The constructs outlined by the criterion are backed by sound logic and logical thinking. It will be a challenge for many companies on the first clip acceptance of the criterion, but as clip goes by, and the Indian comptrollers wake up to the realizable value construct, the criterion will organize portion of the “ ordinary class of concern ” .