Is restoration of impairment losses permitted under US GAAP for assets held for use?

• A. Yes, always
• B. No, it is prohibited
• C. Only if the asset is reclassified to held for sale
• D. Yes, but only partially

Answer: (B)

Under US GAAP, restoration of impairment losses for assets held for use is indeed prohibited. This means that once an asset is deemed impaired and its carrying amount is written down to its fair value, that reduced value becomes its new cost basis. If the asset later recovers in value, the previously recorded impairment loss cannot be reversed. This treatment reflects the conservatism principle in accounting, which emphasizes recognizing losses more readily than gains.

In contrast, for assets held for sale, if their value increases, any impairment loss recognized can be reversed up to the original carrying amount before the impairment. However, this reversal does not apply to assets held for use. Understanding this distinction helps clarify the treatment of impairment under US GAAP and the limitations placed on restoring previously recognized losses.