An ACCA student sent a query into AccountancyStudents concerning how we would translate a foreign asset which had been subject to impairment under current UK GAAP.  Consider this example:

A UK entity whose functional currency is sterling has a property located in the USA which was acquired at a cost price of US$ 1.8 million.  At the date of acquisition, the exchange rate was £1 = US$ 1.6 and the entity carries the asset using the historic cost model.  At the reporting date the recoverable amount of the property was valued at $1.62 million following an impairment review.  At the reporting date the exchange rate was £1 = US$ 1.8.

Ignoring the effects of depreciation, the impairment loss would be reported in the comprehensive income statement as:

Carrying value at the reporting date (US$ 1,620,000 @ 1.8) = £900,000 A
Historical cost - (US$1,800,000 @ 1.6) =                            £1,125,000 B
Impairment Loss (A - B)                                                        (£225,000)

Which can be proved as follows:

Change in value due to impairment = US$180,000 @ 1.8 =    (£100,000)
Exchange component of change = US$1,800,000 @ 1.8 minus
US$1,800,000 @ 1.6)                                                          (£125,000)

Impairment loss recognised                                                   (£225,000)