Revaluation & Impairment
Depreciation is the plan; reality doesn't always follow it. A flood guts a floor of equipment — the book value overstates the truth (impairment). A building's fair value climbs far past its depreciated cost — policy may allow restating it (revaluation). REDA Financials handles both with dedicated actions that post the accounting and rebuild the remaining schedule, prospectively, in one save.
Access you'll need. Impairing or revaluing an asset requires the Accounting Admin v2 or Accounting Controller v2 permission set. The Accounts Payable v2, Accounts Receivable v2, and Read Only v2 sets can view assets but not write them down or up.
Impairment: writing down
Impair Asset, with the loss and the date
Enter the Impairment Loss (carrying amount minus recoverable amount — your valuation work) and the Last Impairment Date, set Status to Impaired, save. In the action's words: "Impairment writes the asset down when recoverable amount falls below carrying amount (IAS 36). On save: the Impairment Loss reduces Net Book Value… and posts to the Impairment Loss P&L account; the remaining depreciation schedule is rebuilt over the impaired value."
What posts
DR Impairment Loss (P&L) / CR Accumulated Depreciation for the loss — NBV drops immediately, the pre-impairment NBV is stamped for the audit trail, and the unposted schedule is rebuilt to depreciate the new value over the remaining life. Posted history stays untouched.
Two validations stand at the door, and the aftermath is precise:
- "Impairment Loss must be greater than zero when impairing an asset." and "Last Impairment Date is required when impairing an asset." — an impairment needs a real loss and a real date.
- The write-down is itself an Asset Ledger line (type Impairment, born Posted), so NBV drops through the same accumulated-depreciation arithmetic as every monthly charge — nothing is hand-adjusted.
- The pre-impairment NBV is stamped on the asset for the audit trail, and the success toast confirms the postings: "Asset impaired — Accounting Transactions posted."
- The rebuilt remainder resumes the month after the last posted charge, spreads the impaired value over the remaining life (original life minus months already posted), and uses the Full Month convention. Posted history is untouched.
Revaluation: restating to fair value
The Revalue Asset action takes a Current Value and a Revaluation Date — the asset stays Active, and NBV simply becomes the value you entered: "an increase posts to equity (Revaluation Surplus), a decrease to P&L…; the remaining depreciation schedule is rebuilt over the new carrying amount." The bookkeeping follows the standard's asymmetry for you:
- Upward: first reverses any prior impairment losses through P&L, then credits the rest to the Revaluation Surplus equity account — gains from revaluation aren't profit.
- Downward: first consumes any prior surplus, then charges the remainder to P&L.
- Historical cost stays visible — the adjustment accumulates in its own field, and running surplus/loss balances per asset keep repeat revaluations honest.
In account terms, using the Asset Type's GL set:
| Direction | Debit | Credit |
|---|---|---|
| Upward (Current Value above NBV) | Asset GL Account | Impairment GL Account — up to any prior loss balance (the reversal), then Revaluation Surplus GL for the rest |
| Downward (Current Value below NBV) | Revaluation Surplus GL — up to any prior surplus, then Impairment GL Account (P&L) for the rest | Asset GL Account |
The rules that keep revaluations clean
Each direction checks its accounts before posting, and says exactly what's missing:
| The message | What it means / what to do |
|---|---|
| "Cannot revalue {asset}: an upward revaluation requires a Revaluation Surplus GL on the Asset Type." | The equity side of an increase has nowhere to post — add the surplus account to the type. |
| "Cannot revalue {asset}: reversing a prior revaluation loss requires an Impairment GL on the Asset Type." | An increase that first repairs a past write-down routes through P&L — the Impairment account is that route. |
| "Cannot revalue {asset}: drawing down a prior revaluation surplus requires a Revaluation Surplus GL on the Asset Type." | A decrease consumes past surplus first — same account, other direction. |
| "Cannot revalue {asset}: a revaluation loss requires an Impairment GL on the Asset Type." | A decrease beyond any surplus is a P&L loss — it needs the Impairment account. |
| "Cannot revalue {asset}: the Asset Type has no Asset GL Account configured." | Every revaluation moves the asset account itself — the most fundamental account of the set. |
Common mistakes to avoid
| Mistake | Why it hurts | Do this instead |
|---|---|---|
| Impairing with the Impairment GL unconfigured | The status flips to Impaired but no write-down posts — books silently overstate the asset | Configure Impairment and Accumulated Depreciation GLs on the type first; verify the Posted Impairment line after saving |
| Using impairment to record a value increase | Impairment only writes down — there is no negative loss | Increases (including reversals of past losses) go through Revalue Asset |
| Entering the recoverable amount in the Impairment Loss field | The field wants the loss (carrying amount − recoverable amount), not the target value — mixing them up writes down the wrong number | Compute the loss first; for "make NBV equal X", revaluation's Current Value is the field that thinks that way |
| Waiting months to record a known impairment | Every intervening charge depreciates the wrong value, compounding the overstatement | Record it when the evidence exists — the rebuild handles the rest prospectively |
| Expecting revaluation to rewrite Acquisition Cost | It never does — cost stays historical; the change lives in Revaluation Adjustment | Read NBV (cost + adjustment − accumulated depreciation) as the current value; that's the design |
| Impairment | Revaluation | |
|---|---|---|
| Direction | Down only | Either |
| When | Evidence of damage/obsolescence — mandatory when indicators exist | A fair-value accounting policy choice (typically property) |
| P&L effect | Loss now | Only downward beyond prior surplus; increases build equity |
| Status | Impaired (can return to Active) | Stays Active |
| Afterwards | Remaining schedule rebuilds over the new value; posted history untouched | |
Where to go next
- Asset Disposal — when the write-down should be a write-off.
- Depreciation Schedule Generation — the rebuild mechanics.
- Asset Types & Categories — the GL accounts these actions require.
Frequently asked questions
Your valuation process — recoverable amount is the higher of fair value less costs to sell and value in use (IAS 36 language your auditor will use). REDA Financials records and posts the number; the judgment is yours and your accountant's.
Yes — an upward revaluation reverses prior losses first (through P&L, exactly as the standard wants) before any surplus builds. The asset's running loss balance makes the split automatic.
Never — both actions are prospective. History stands; the future schedule adapts. That's also why acting promptly matters: every month of delay depreciates the wrong value.
Almost certainly the silent skip: the Asset Type is missing its Impairment GL or Accumulated Depreciation GL, so the status changed but nothing posted. Check the Asset Ledger tab for the Posted Impairment line; if it's absent, have your administrator complete the type's accounts and consult your controller on recording the write-down properly.
The unposted lines are deleted and rebuilt: the impaired value spreads over the remaining life (original life minus the months already posted), starting the month after the last posted charge, with a full first month. Total life is preserved; only the monthly amounts shrink.
No — historical cost is sacred. The change accumulates in Revaluation Adjustment, one of the four components of NBV. You can always still answer "what did we pay for this?" from the record.
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