Guys I am referring to Becker Passmaster CPA 07060
A company reporting under IFRS holds a position in BE Corp. bonds that it classifies as available for sale. In the previous yr 1, the company recorded an impairment loss related to the bonds. In the current year (yr 2), the company reversed a portion of the impairment loss. How should the company account for the impairment loss reversal in its current year financial statement?
A. Book the reversal to the current year's OCI.
B. Recognize the reversal the current year's income statement.
C. Recognize the increase as an adjustment to the previous year's income statement.
D. Book the increase as an adjustment to the previous year's OCI.
Answer is B.
My Confusion: In year 1 when an available for sale security suffers a loss, we recognize the unrealized loss in OCI (PUFE). When we want to reverse the loss in Yr 2, my understanding is the recovery of loss should be adjusted to OCI in current year (which is answer A in the above options) up to the amount suffered as loss. According to becker explanation, Under IFRS, reversals of impairment losses are allowed and the increase would be booked to the current year's income statement.
My question if it is so, since under GAAP reversals are not allowed what it would have been if the company was using GAAP????
What it would have been (under both GAAP and IFRS) if the question had mentioned the company suffered a temporary loss (instead of impairment loss) which was recovered in Yr 2? What will be the accounting treatment for both under US GAAP and IFRS?
Some one please shed some light! Very confused! :(