## Reversal of Impairment Loss — The Maximum Reversal Cap
### Core Principle
When conditions that caused an impairment loss improve, the loss may be partially or fully reversed — but the reversal is capped. You cannot reverse more than what would have been the carrying amount had the impairment never occurred.
### The Cap Rule (Step-by-Step)
| Step | Action |
|---|---|
| 1 | Calculate CA after impairment (depreciate the impaired value over revised remaining life) |
| 2 | Calculate CA if no impairment (continue original depreciation schedule as if impairment never happened) |
| 3 | Maximum Reversal = CA (if no impairment) − CA (after impairment) |
| 4 | Calculate actual potential reversal = Recoverable Amount on reversal date − CA after impairment |
| 5 | Actual Reversal = min(Max Reversal, Actual Potential Reversal) |
| 6 | Revised CA after reversal = CA after impairment + Actual Reversal |
### Why the Cap Exists
The cap prevents a windfall — the entity cannot report a carrying amount higher than what would have existed in a world with no impairment. Reversal restores value only to the originally-expected trajectory, not beyond it.
### After Reversal: Depreciation
Once reversal is booked, the new carrying amount is depreciated over the remaining original useful life (not the revised remaining life used post-impairment). Recalculate the revised depreciation charge.
### Key Distinction: Reversal vs. Revaluation
- Under cost model: reversal is capped as above; excess goes to income.
- Under revaluation model: reversal first reverses any prior impairment charge to P&L, and excess is credited to revaluation surplus.