Rebound Inc. reports under IFRS. In 2013 Rebound recognized an impairment of $200,000 due to a troubled debt restructuring. In 2014 Rebound was pleased to determine that more cash flows would be received from the receivable than was previously thought, such that, if the total impairment were to be calculated in 2014, it would be estimated as $150,000 rather than $200,000. How should Rebound treat this in its 2014 income statement?

Question

Quizplus · Accepted Answer

According to IFRS, when estimating impairment losses, entities should revise their estimates when events or changes in circumstances indicate that the amount of the impairment loss needs to be changed. In this case, Rebound has revised its estimate of the impairment loss, based on new information received in 2014. Therefore, it should recognize an increase in 2014 net income of $50,000 ($200,000 - $150,000). This is not a prior period adjustment, as the error was not in the recognition of the impairment charge, but rather in the estimate of its amount. Ignoring the change would not be in line with IFRS requirements.