The loss, and what next year's depreciation becomes

The loss is the excess, and it goes through profit or loss

L3.3 ended with Cobalt Ridge's crusher at a carrying amount of $500,000 and a recoverable amount of $380,000. Under IAS 36 the asset is written down to the recoverable amount, and the write-down is the impairment loss:

$$\text{Impairment loss}=\text{Carrying amount}-\text{Recoverable amount}=500,000-380,000=120,000$$

Under the cost model the loss is an expense in profit or loss for the year — it is not other comprehensive income, and it is not a contra-revenue. The credit side records the write-down against the asset:

Dr Impairment Loss                        120,000
    Cr Accumulated Depreciation—Crusher           120,000

The Crusher account itself stays at cost, 800,000. Accumulated depreciation rises from 300,000 to 420,000, and the carrying amount is 800,000 − 420,000 = 380,000 — exactly the recoverable amount. Crediting Crusher directly would give the same carrying amount but would destroy the cost figure the PP&E note discloses; crediting Depreciation Expense would misname the loss and misstate both lines.

Re-basing: the new carrying amount over the remaining life

An impairment does not just cut the balance sheet; it changes every depreciation entry that follows. The crusher had a remaining useful life of five years and no residual. Before the impairment the annual charge was 500,000 ÷ 5 = 100,000. After it, depreciation starts again from the new carrying amount:

$$\text{Revised annual depreciation}=\frac{\text{New carrying amount}-\text{Residual}}{\text{Remaining life}}=\frac{380,000-0}{5}=76,000$$

Dr Depreciation Expense                    76,000
    Cr Accumulated Depreciation—Crusher            76,000

Continuing at 100,000 is the trap: five more years of 100,000 would drive the carrying amount to −120,000, expensing the same 120,000 twice — once as the impairment and again through depreciation. The remaining life is the remaining five years, not the original eight, and it is unchanged by the impairment unless management also revises the estimate.

A second asset, with a residual

Harbourline Logistics tests a sorting machine after a customer contract is cancelled — an internal indicator. Cost $240,000\ast \ast ,accumulateddepreciation\ast \ast$90,000, carrying amount 150,000. Recoverable amount $96,000\ast \ast .Loss150,000-96,000=\ast \ast 54,000\ast \ast :DrImpairmentLoss54,000/CrAccumulatedDepreciation—SortingMachine54,000.Remaininglifefouryears,residual\ast \ast$8,000 — the residual survives the impairment and still comes off the top:

$$\frac{96,000-8,000}{4}=22,000\text{ a year}$$

Two rules to carry

The loss is the excess of carrying amount over recoverable amount, expensed now. Depreciation is then re-based: new carrying amount less residual, over the remaining life. L3.5 shows what happens when the recoverable amount comes back.