IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

264

Wiley IFRS: Practical Implementation Guide and Workbook

6.3.11 Reversals of Impairm ent Losses 6.3.11.1 Impairment losses for loans and receivables, held-to-maturity investment s, and invest– ments in debt instruments classified as available for sale are reversed through profit or loss if the impairment losses decrease and the decrease can be objectively related to an event occurring after the impairment was recognized (e.g., an improvement in an external credit rating). In other words, a gain would be recognized in profit or loss to reverse some or all of the previously recog nized im– pairment loss in these circumstances. Such reversals are limited to what the asset' s amortized cost would have been had the impairment not been recognized at the date the impairment loss is re– versed. 6.3.11.2 Impairment losses for investments in equit y instruments are never reversed in profit or loss until the investments are sold. A reason for the difference in treatment of reversa ls between investments in equity and debt instruments is that it is more difficult to objec tively distinguish re– versals of impairment losses from other increases in fair value for investments in equity instru– ments. 6.3.11.3 In 2006, the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC II , Interim Financial Reporting and Impairment. Thi s Interpretation clarifies that an entit y shall not reverse an impairment loss recognized in a previous interim period in respect of an investment in either an equity instrument or a financial asset carried at cost. Th is applies even if a loss would not have been recognized, or a smaller loss would have been recognized, had an

impairment assessment been made only at a subsequent balance sheet date. 6.3.12 Recognition of Interest Income on Impaired Financial Assets

Interest income on financial assets that have been identified as impaired are recognized using the discount rate the entity used to measure the impairment loss, that is, the origi nal effective interest rate for financial assets measu red at amortized cost. This means that the reporting of interest in– come is not suspended when an impairme nt occurs. Instead the original effective interest rate is applied against the written-down amount to determine the amount of interest income that should be reported in the subsequent period.