Reversing an impairment loss

Impairment under IFRS is not a one-way street. When conditions improve, a company must reverse a previous impairment, within limits. This guide explains when a reversal is required, how the cap works, and works through an example where the recoverable amount recovers above the cap.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

Under IAS 36, a reversal of an impairment loss is required for assets other than goodwill when there is an indication that the loss no longer exists or has decreased and the estimates used to measure recoverable amount have changed. The reversal increases the carrying amount to the new recoverable amount, but never above the carrying amount, net of depreciation, that the asset would have had if no impairment had been recognised. Goodwill impairments are never reversed.

At a glance

Required when
Estimates of recoverable amount change
Assess
Indicators at each reporting date
Cap
Depreciated historical cost
Goodwill
Never reversed
Recognised in
Profit or loss, or OCI if revalued
US GAAP
Reversal prohibited
Reversing an impairment lossRequired when: Estimates of recoverable amount change; Assess: Indicators at each reporting date; Cap: Depreciated historical cost; Goodwill: Never reversed; Recognised in: Profit or loss, or OCI if revalued; US GAAP: Reversal prohibited.KEY FACTS AT A GLANCEReversing an impairment lossRequired whenEstimates of recoverableamount changeAssessIndicators at eachreporting dateCapDepreciated historicalcostGoodwillNever reversedRecognised inProfit or loss, or OCI ifrevaluedUS GAAPReversal prohibitedChecked against official sourcesTax BakersReversing an impairment lossRequired when: Estimates of recoverable amount change; Assess: Indicators at each reporting date; Cap: Depreciated historical cost; Goodwill: Never reversed; Recognised in: Profit or loss, or OCI if revalued; US GAAP: Reversal prohibited.KEY FACTS AT A GLANCEReversing an impairment lossRequired whenEstimates of recoverable amount changeAssessIndicators at each reporting dateCapDepreciated historical costGoodwillNever reversedRecognised inProfit or loss, or OCI if revaluedUS GAAPReversal prohibitedChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

When is the reversal of an impairment loss required?

At each reporting date, a company assesses whether there is any indication that an impairment loss recognised in earlier periods, for an asset other than goodwill, may no longer exist or may have decreased. Indicators mirror those for impairment: a significant rise in market value, favourable changes in technology, markets or law, lower market interest rates, or better performance than expected. If there is an indicator, the company estimates recoverable amount again.

A reversal is recognised only if there has been a change in the estimates used to determine recoverable amount. An increase caused only by the passage of time, the unwinding of the discount, is not a reversal.

A worked example with the cap

A machine cost 1,000 with a 10-year life and no residual value. At the end of year 2, with a carrying amount of 800, it is impaired to its recoverable amount of 600. Depreciation becomes 75 a year over the remaining 8 years, so the carrying amount is 450 at the end of year 4. Demand then recovers and the recoverable amount is re-estimated at 700.

End of year 4CU
Carrying amount after impairment and depreciation450
New recoverable amount700
Cap, the depreciated historical cost: carrying amount had no impairment been recognised (1,000 less 4 years at 100)600
Reversal recognised: up to the cap150
Carrying amount: with and without the impairmentCarrying amount: with and without the impairment900900Year 1800600Year 2700525Year 3600600Year 4500500Year 5400400Year 6Had no impairment been recognisedActual carrying amount
Impaired in year 2, reversed in year 4 back to the no-impairment path, never above it.

The machine goes back to 600, not 700, and depreciation returns to 100 a year. The reversal of 150 is recognised in profit or loss.

What are the journal entries for a reversal?

For the machine above at the end of year 4: Dr Machine (or Cr Accumulated impairment) CU 150, Cr Reversal of impairment loss in profit or loss CU 150. From year 5, depreciation is CU 100 a year on the restored carrying amount of CU 600.

Can goodwill impaired in an interim period be reversed at year end?

No. IFRIC 10 prohibits reversing an impairment of goodwill recognised in an interim period in a later interim period or the annual financial statements, even if the annual test would not have required it.

How is a reversal allocated in a cash-generating unit?

To the unit's assets other than goodwill, pro rata to their carrying amounts, with each asset capped at the lower of its recoverable amount, if determinable, and the carrying amount it would have had without the impairment. Any goodwill written off stays written off.

What about revalued assets?

For an asset carried under the revaluation model, a reversal is treated as a revaluation increase: it goes to other comprehensive income, except to the extent it reverses an impairment previously recognised in profit or loss for the same asset.

Why is goodwill never reversed?

Because any later increase in the recoverable amount of goodwill is likely to be internally generated goodwill rather than a reversal of the acquired goodwill that was impaired, and IAS 38 prohibits recognising internally generated goodwill. See goodwill impairment testing.

What must be disclosed?

The amount of reversals recognised in profit or loss and in OCI for each class of assets, and, for material reversals, the events and circumstances that led to them and the recoverable amount and how it was measured.

How does US GAAP differ?

US GAAP prohibits reversing impairment losses on assets held and used, and on goodwill. A US company's written-down amount becomes the new cost basis. See IAS 36 vs US GAAP impairment and IAS 36 explained.

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Questions people ask

When can an impairment loss be reversed under IAS 36?

When there is an indication the loss has decreased and the estimates used to determine recoverable amount have changed, for assets other than goodwill.

What is the limit on an impairment reversal?

The carrying amount the asset would have had, net of depreciation, if no impairment loss had been recognised.

Can goodwill impairment be reversed?

No. Goodwill impairment losses are never reversed under IAS 36.

Does US GAAP allow impairment reversals?

No, not for assets held and used or for goodwill.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 36 Impairment of Assets

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IAS 36IAS 36 impairment of assets explainedIAS 36Goodwill impairment testingIFRS vs US GAAPIAS 36 vs ASC 350 and 360: impairment differences

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This guide is general information. It is not tax or legal advice for your situation.