We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Accounting

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is a Reversal of Impairment?

By A. Leverkuhn
Updated: May 16, 2024
Views: 26,054
References
Share

Reversal of impairment is a situation where a company can declare an asset to be valuable where it has previously been declared a liability. In general, asset impairment indicates that an asset costs more to a business than it is worth. There are times, however, when this situation changes and the asset becomes valuable.

Generally, there are specific protocols according to national finance laws for companies that want to declare an asset impaired. These rules are different for different classes of assets. For instance, a trademark or patent has its own cost and profit factors that will determine whether it is impaired. The criteria for physical machinery or large physical assets are much different.

A wide variety of companies in different industries approach asset impairment, and reversals, in different ways. For a tech company that focuses on intangible products and intellectual ownership, a reversal of impairment might be related to abstracts like brand value or external valuations affecting a stock price. For companies that produce physical goods, some basic math can help managers determine whether a physical asset, such as a piece of machinery or a specific manufacturing facility, has become impaired or whether a reversal has occurred.

In reversals of impairment, the company has come to the conclusion that an asset is no longer a burden to its profit margin. This company then needs to report to the applicable regulators or tax offices that a reversal has occurred. Many of the regulations and criteria for such a situation are designed to apply to a company’s specific annual tax filing or other fiscal accounting reports. The valuation and identification of a change in value also varies according to the different nations and regions of the world that have their own corporate accounting laws and systems.

It’s important to note that some types of impaired assets cannot be reversed. The company’s leadership must stay apprised of how national tax offices or laws understand and provide for a reversal of impairment. For companies that operate internationally, this issue may become even more complicated, where the company may need to operate under the laws of the nation where it is based, but may also have to provide values for an asset in terms of the currency of the country where individual offices are located.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Discussion Comments
Share
https://www.smartcapitalmind.com/what-is-a-reversal-of-impairment.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.