Rebooking to Different Ledgers When There's an Impairment Loss Reversal - Product Advisory

November 2021

Impairment Loss Reversal (ILR)

In accounting, impairment describes a permanent reduction in the value of a company's asset, typically a fixed asset or an intangible asset. When testing an asset for impairment, the total profit, cash flow, or other benefit expected to be generated by that specific asset is periodically compared with its current book value. If it is determined that the book value of the asset exceeds the future cash flow or benefit of the asset, the difference between the two is written off and the value of the asset declines on the company's balance sheet.

According to FASB, once an asset is impaired, it will always be impaired, and cannot be reversed. However, according to IASB, impairment of assets other than goodwill may be reversed. At each reporting period an entity needs to assess whether there are indications that an impairment, recognized in a prior period, may not still exist or may not exist at the amount previously recorded. If the impairment has decreased or no longer exists, based on the current recoverable amount, then the impairment is required to be fully or partially reversed and the reversal recognized in income or loss for the period.

For example, a Lessee leases a warehouse that had a devastating fire. After testing the asset, the Lessee decided to impair the asset since the warehouse was not usable anymore. After several months, the warehouse was repaired and restored to a functioning space. According to FASB, there is nothing to do, you cannot reverse that impairment. But under IASB, you have the ability to reverse the impairment.

LeaseAccelerator offers the ability to reverse an asset impairment loss to any asset booked in an IAS 17 or IFRS 16 ledger. LeaseAccelerator calculates the depreciation on the net book value (NBV) of the asset prior to the impairment so that the asset will not go below its value.

While you may reverse an impairment loss for an asset under IAS or IFRS, you cannot reverse an impairment loss under US GAAP. As such, LeaseAccelerator warns users when trying to record an impairment loss reversal that the reversal will only apply to the asset in the IAS or IFRS ledgers. It is important for users to understand that should any subsequent impairments be recorded; it may result in the asset being over-impaired or fully impaired under US GAAP. This warning message only appears if the deal is booked to both US GAAP and international ledgers. Please refer to the example at the end of the document for additional details.

Note: This is only relevant when reversing all or part of the impairment on an asset that has been partially impaired. If the asset was fully impaired under US GAAP, it will remain fully impaired and LeaseAccelerator will not allow you to impair that asset below a zero net book value (NBV), thus eliminating the risk of over-impairing.

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LeaseAccelerator recommends that before you record the impairment loss reversal, you rebook the lease to only IAS/IFRS ledgers and then create a copy of the lease (with a unique schedule number) and book that second lease to only ASC ledgers. Although the message is red, rebooking, as described, is not required to save the impairment loss reversal in the UI. The decision should be made with your business as to whether or not this needs to be done.

In addition, careful review should be conducted to determine if an opening balance adjustment or top-side ERP adjustment is necessary.

When rebooking a lease to a different set of ledgers, LeaseAccelerator will reverse the deal out of the deselected ledger(s). If the periods are open, you simply will not see any accounting in those ledgers, and if periods have been closed, it will look like a roll back booked deal, but only for those ledgers that were not included in the rebooking, where the entries net to zero.

Please see below for steps on how to rebook a lease to a different set of ledgers and re-enter a secondary lease to book to another set of ledgers.

Note: While LeaseAccelerator recommends this approach, it is not required, and users may elect to record the Impairment Loss Reversal and reconcile differences outside of the system.

If a customer decides to take LeaseAccelerator’s recommendation to rebook and enter a secondary lease, it is important to note that any subsequent activities, which may include additional impairment events, payment adjustments, modifications, or end of term events, must be recorded for both leases to maintain consistency.

If the lease against which you wish to record an impairment loss reversal is the right-hand side of a modification, you will need to enter the secondary lease from inception and re-record any modifications (left-to-right) to replicate the lease in the US GAAP ledgers as a separate lease.

Step 1: Rebook Lease to IAS/IFRS Ledgers Only

Step	Action
1	Search for deal using the Top Search Bar and Deal #.
2	Go to Deal History from Left NavBar and on the Next Steps tile, select Book Deal from the Event Type drop-down.
3	Choose the appropriate Participant Type for the person who will be booking the deal.
4	If there is a specific person that should be booking the deal, you may select their name from the Assign To drop-down. This field is not required.
5	Click Save.
6	Click the Book button to book this deal to different ledgers.
7	Once in the Book Deal workspace, the Commencement Date populates with the original Lease Start Date. You should not change this date.
8	If your prior periods are closed, you will not see a Ledger Date but rather a notice: “Fiscal period in which the event occurs is closed. Adjusting entries will be created in the first open period.”
9	If the fiscal period in which the event occurs is open, you will see a drop-down for Ledger Date that includes any applicable fiscal periods based on your Commencement Date.
10	Now de-select the ASC ledgers from the Ledger(s) drop-down.
11	Verify the correct option is selected for Expected Disposition.
12	Verify the correct Expected Holding Period is entered, change as necessary. Remember, you are rebooking this lease from the original lease start date, so the RCHP should be the same as it was originally.
13	Click Book.
14	You will be taken to Deal Summary. Once the booking is complete, click Deal Summary on the Left NavBar again to refresh/reload the page. Now you will see this deal is only booked to IAS/IFRS ledgers.
15	It is best practice after rebooking any deal to regenerate the accounting classification. To do so, go to Deal History from the Left NavBar.
16	Click the Regenerate Accounting Classification button on the Next Steps tile.
17	You will be taken to the Accounting Classification workspace. It is still best practice to check the boxes for all of the standards and classify the lease according to all four standards.
18	In the Reclassify Effective drop-down, select the Commencement Date and click Refresh Classification button.
19	Verify all information is correct. You may expand the Analysis by Category and Deal Characteristics sections for more information.
20	Click Save Accounting Classification.

Now that you have separated the lease from the ASC ledgers, it is time to re-enter a secondary lease to book to the ASC ledgers. This lease should be identical to the original in every way with the exception of a unique schedule number and the ledgers it will be booked to. LeaseAccelerator recommends using a similar schedule number but with an identifier such as ASC to indicate easily that this is the deal booked to the ASC ledgers.

Note: For the purposes of distinguishing between the original lease which has been rebooked to International ledgers only and the secondary lease that will be booked to only ASC ledgers, this product advisory will refer to the secondary lease as the ASC Lease.

Step 2: Enter a Secondary Deal for ASC

Step	Action
1	From the Left NavBar, select Enter Schedule.
2	On the Participants tile, enter the appropriate participant information that matches the original deal.
3	On the Details tile, enter a unique schedule number in the Schedule Number field. LeaseAccelerator recommends using a similar schedule number with an identifier such as ASC.
4	Enter the rest of the lease details, including the same asset line items.
5	On the Terms tile, enter the terms for the original lease, including the same Mid-Term/End-of-Term Options.
6	If there were any Related Expenses, enter those on the Expense tile, otherwise click Save.
7	Click the Book button to book this deal to the ASC ledgers.
8	Once in the Book Deal workspace, the Commencement Date populates with the current date. Change to the original lease start date.
9	If your prior periods are closed, you will not see a Ledger Date but rather a notice: “Fiscal period in which the event occurs is closed. Adjusting entries will be created in the first open period.”
10	If the fiscal period in which the event occurs is open, you will see a drop-down for Ledger Date that includes any applicable fiscal periods based on your Commencement Date.
11	Now select the original ASC ledgers that the original deal was booked to.
12	Verify the correct option is selected for Expected Disposition.
13	Verify the correct Expected Holding Period is entered, change as necessary. Remember, you are booking this secondary lease from the original lease start date, so the RCHP should be the same as it was originally.
14	Once you have chosen your ledgers, the Expected IBR based on loaded rates will populate. For the purposes of this process, you should use the same IBR that was used at inception of the original deal.
15	Click Book.
16	You will be taken to Deal Summary. Once the booking is complete, click Deal Summary on the Left NavBar again to refresh/reload the page. Now you will see this deal is only booked to ASC ledgers.
17	Scroll to bottom of page and click Generate Accounting Classification.
18	You will be taken to the Accounting Classification workspace. It is still best practice to check the boxes for all of the standards and classify the lease according to all four standards.
19	In the Reclassify Effective drop-down, select the Commencement Date and click Refresh Classification button.
20	Verify all information is correct. You may expand the Analysis by Category and Deal Characteristics sections for more information.
21	Click Save Accounting Classification.
22	If you go back to Deal Summary and the Summary tile, you can see the secondary deal is booked to only ASC ledgers and the rest of the information should be identical to the original lease.

Now that you have two separate leases, each booked to either only international ledgers or only US GAAP ledgers, you must record the original impairment for the ASC lease, using the same Impairment Date and Amount as the original lease. Additionally, if there have been any other events recorded on the original lease, such as payment adjustments, partial mid-term/end-of-term events, or modifications, you must re-record those on the secondary deal for ASC.

Step 3: Record the Impairment for the ASC Lease

Step	Action
1	Search for deal using the Top Search Bar and Deal #.
2	Hover over Record Event in the Left NavBar.
3	From the first menu, select Impair an Asset.
4	Once in the Record Asset Event workspace, select the asset that you want to impair.
5	Verify that Impairment is pre-selected in the Asset Event drop-down.
6	Change Impairment Date to the same date that was used for the impairment on the original lease.
7	Select the appropriate fiscal period from the Ledger Date drop-down.
8	Enter any relevant comments related to the impairment.
9	Enter the impairment amount. This should be the same amount as the original impairment on the original lease.
10	Click Save.

Additionally, once you’ve separated the two leases according to accounting standards, it’s time to record the impairment loss reversal for the original lease, booked to international ledgers only.

Step 4: Record Impairment Loss Reversal for Original Lease

Step	Action
1	Search for deal using the Top Search Bar and Deal #.
2	Hover over Record Event in the Left NavBar.
3	From the first menu, select Reverse asset impairment loss.
4	Once in the Record Asset Event workspace, select the asset that you want to reverse the impairment. Assets eligible will indicate if they are impaired in the asset tree.
5	Verify that Impairment Loss Reversal is pre-selected in the Asset Event drop-down.
6	Verify the Impairment Loss Reversal Date, change as necessary.
7	Select the appropriate fiscal period from the Ledger Date drop-down.
8	Enter any relevant comments related to the impairment loss reversal.
9	Enter the impairment loss reversal amount. IAS 36 Para 117 defines a maximum impairment reversal amount. Note: LAS does not automatically calculate an impairment reversal limit; this should be determined by the user to arrive at the maximum allowed reversal amount.
10	Click Save.

Balance Adjustments

It is up to the customer to review and reconcile their balances after the creation of the secondary deal. If, in the customer’s professional judgment, a material difference is detected, the customer may do a balance adjustment import.

To bulk import balances, use the Balance Adjustment tile in the Bulk Import workspace and import a Balance Adjustments import with all required fields completed.

Step	Action
1	Prepare your Balance Adjustment Import template.
2	Click Bulk Import from the Left NavBar.
3	Select the Balance Adjustment tile.
4	Click Choose File.
5	Browse the locate the balance adjustment template to import and select. The file name appears in the UI.
6	Click Validate. The system will start processing.
7	Review the validation results.
8	Make any updates needed to your import file to resolve errors. Please note, if you do make changes, you will need to validate your file again prior to importing.
9	Click Import.
10	Verify that the import was successful. The import status will display with a green dot indicating the import was successful.

Use Case

In this example, the user has a 2-year contract with uneven payments, paid annually in advance with 7% interest, and recorded to both IFRS 16 and ASC 842 ledger. The deal is classified as Finance and Capitalized-Operating (CapOp) in the IFRS 16 and ASC 842 ledgers, respectively. Since the depreciation is calculated differently for each of the classification i.e., a constant straight-line for finance as opposed to fluctuations for CapOp (the monthly CapOp depreciation is the difference between average payment and accretion of interest), as such, this yields a different NBV in each ledger as of each effective Balance Sheet date.

Given the above scenario, if the user is to perform a full impairment at the beginning of month two, using NBV amount suggest by the system (be advised that by default the system will suggest the highest remaining NBV from one of the two ledgers), then decides to perform an impairment reversal at the beginning of month eight, please note the different accounting outputs as illustrated in image 1, 2, and 3 below.

Image 1: Output generated from the ASC ledger, the ILR is not reflected as this practice is not currently allowed by the FASB.

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Image 2: Output generated from IFRS 16 ledger, with impairment value different to that from the ASC ledger above as user performing impairment using the highest value suggested by the system.

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Image 3: Output generated from the IFRS 16 ledger, with the effect of ILR.