In 2010, Bambung Corporation acquired production machinery at a cost of £410,000. In 2013 when accumulated depreciation was £100,000, Banbung reported an impairment loss of £75,000. Now, in 2017 the machinery has a book value of £190,000. The recoverable amount of the machinery is £210,000. and its value in use is £195,000. During impairment testing, Bambung recognized the possibility of a

reversal of the previous impairment loss. What amount, if any, should Bambung recognize as a reversal of impairment loss?

A) £75,000
B) £20,000
C) £ 5,000
D) -0-

Answer: B
Explanation: B) Cost £410,000
Less Impairment Loss (75000)
Adjusted Cost 335,000
A/D (2017) 145,000 (335,000 - 190,000)
Carrying Value 190,000
Fair Value 210,000
Value in Use 195,000
Recoverable Amount
(greater of FV or Value in Use) £210,000
Potential Reversal of
Impairment Loss (£210,000 - £190,000) £20,000

Next, verify that the new recoverable amount is not greater than the Carrying Value based on original cost, if the impairment loss was never recorded. As calculated below, the new recoverable amount (£210,000) is less than the CV based on original cost (£265,000), therefore, the entire £20,000 impairment loss can be reversed.

CV Based on Original Cost
Original Cost £410,000
Less Accumulated Amortization (145,000)
CV Based on Original Cost £265,000
C)