In 2024, a company recognized a $200,000 impairment loss on an operating warehouse classified as held and used, writing its carrying amount down to fair value. In 2026, market conditions rebound and an appraisal shows the warehouse's fair value has recovered to well above its 2024 pre-impairment carrying amount. Under US GAAP, may the company reverse any portion of the 2024 impairment loss?
- Yes, the recovery must be recognized as a gain up to the amount of the original impairment loss
- No — ASC 360-10-35-20 prohibits reversing an impairment loss on a held-and-used long-lived asset once recognized, even if fair value later recovers; the written-down amount becomes the asset's new cost basis and is depreciated prospectively
- Yes, but only the portion of the recovery attributable to general inflation may be recognized as a gain
- No, unless the company sells the warehouse, in which case the reversal is recognized retroactively by restating the 2024 financial statements
Why B? And why not the others?
Correct answer: B. No — ASC 360-10-35-20 prohibits reversing an impairment loss on a held-and-used long-lived asset once recognized, even if fair value later recovers; the written-down amount becomes the asset's new cost basis and is depreciated prospectively
Under ASC 360-10-35-20, once an impairment loss is recognized for a long-lived asset held and used, US GAAP prohibits reversing it even if the asset's fair value later recovers; the reduced carrying amount becomes the asset's new cost basis and is depreciated over its remaining useful life going forward. This differs from IFRS's IAS 36, which permits reversing impairment losses on most assets (other than goodwill) when circumstances improve. Option A describes the IFRS approach, not US GAAP. Option C invents an inflation-linked carve-out that does not exist in ASC 360. Option D is wrong because a later sale would simply produce an ordinary gain or loss on disposal recognized in the period of sale — GAAP does not permit retroactively restating a prior period's already-issued financial statements to undo a correctly measured impairment.
Source: FASB ASC 360-10-35-20 (prohibition on reversal of impairment losses)