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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Accounting for corporate finance: International Financial Reporting Standards: IAS 39: measurement of financial assets: impairment: accounting treatment

Treatment of impairment losses

The recognition and measurement of an impairment loss depends on the category of asset on which it arises.

The concept of impairment is irrelevant to fair value through profit and loss (FVTPL) assets, because these are in any case stated at fair value with decreases (or increases) in fair value going through the income statement.

A held-to-maturity (HTM) or loans and receivables (L&R) asset is impaired if the present value, at the original effective interest rate, of the expected future cash flows - the recoverable amount - is less than the carrying amount. The difference is charged to the income statement. If the recoverable amount later increases due to an event subsequent to the original impairment, then the impairment is reversed to that extent, provided that this does not state the asset at more than amortised original cost. The credit is to the income statement.

Available-for-sale (AFS) assets, for which changes in fair value are reported in equity, are impaired if there is the objective evidence of impairment referred to in CFM21670. In such case the difference is ‘recycled’ out of cumulative losses held in equity and is charged into the income statement, even though the financial asset has not been sold or otherwise derecognised.

If, in a subsequent period, the fair value of a debt instrument classified as AFS increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed, with the amount of the reversal recognised in the income statement.

There is an example at CFM21700.

Impairments relating to shares or other equity assets classified as AFS are not reversed. The same applies to any impairment loss on unquoted shares or other equity assets that are carried at cost because no reliable measure of their fair value exists.