REVALUATION AND IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
REVALUATION AND IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

Summary/Abstract: The logic of recognizing revaluations relates to both the statement of financial position and the measure of periodic performance provided by the statement of comprehensive income. Due to the effects of inflation (which even if quite moderate when measured on an annual basis can compound dramatically during the lengthy period over which property, plant, and equipment remain in use) the statement of financial position can become a virtually meaningless agglomeration of dissimilar costs. Furthermore, if the depreciation charge against profit is determined by reference to historical costs of assets acquired in much earlier periods, profits will be overstated, and will not reflect the cost of maintaining the entity’s asset base. Under these circumstances, a nominally profitable entity might find that it has self-liquidated and is unable to continue in existence, at least not with the same level of productive capacity, without new debt or equity infusions. On the other side, according to IAS 36, at each financial reporting date the reporting entity should determine whether there are conditions that would indicate that impairments may have occurred. Note that this is not a requirement that possible impairments be calculated for all assets at each date of the statement of financial position, which would be a formidable undertaking for most enterprises. Rather, it is the existence of conditions that might be suggestive of a heightened risk of impairment that must be evaluated. However, if such indicators are present, then further analysis will be necessary.

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