Susqua, Inc. has held-to-maturity debt securities it purchased in 2018. At Decem

Question

Susqua, Inc. has held-to-maturity debt securities it purchased in 2018. At December 31, 2019, Susqua, Inc. reported a $120,000 impairment loss related to these securities. During 2020, the debtor was successful in registering a new patent which improved the debtor’s operating outlook. This change of events resulted in a reversal of $45,000 of the impairment loss. At December 31, 2020, the fair value of the debt securities had increased by $68,000 over the impaired value previously recorded. Susqua, Inc. uses IFRS for its external reporting. How much, if any, of this reversal can Susqua, Inc. report in its income for 2020?

$ - 0 -

$120,000.

$68,000.

$45,000.

Explanation / Answer

Solution:

A financial asset or group of assets is impaired, and impairment losses are recognised, only if there is objective evidence as a result of one or more events that occurred after the initial recognition of the asset. An entity is required to assess at each balance sheet date whether there is any objective evidence of impairment. If any such evidence exists, the entity is required to do a detailed impairment calculation to determine whether an impairment loss should be recognised.The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated cash flows discounted at the financial asset's original effective interest rate.

If, in a subsequent period, the amount of the impairment loss relating to a financial asset carried at amortised cost or a debt instrument carried as available-for-sale decreases due to an event occurring after the impairment was originally recognised, the previously recognised impairment loss is reversed through profit or loss. Impairments relating to investments in available-for-sale equity instruments are not reversed through profit or loss.

In the current scenarion $120,000 impairment lsos was repoorted in 2019. In 2020, change of events resulted in reversal of impairment loss of $45,000. Further fair value of debt securities has increased by $68,000 over the impaired value.

investment held to maturity has nothing to do with fair value of securities. Therefore $45,000 impairment loss will be reversed in 2020.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.