AX Development Ltd purchased machinery on 1 April 2016 for $1 200 000; it had an...

AX Development Ltd purchased machinery on 1 April 2016 for $1 200 000; it had an estimated useful life of 12 years. AX Development uses the cost model and the straight-line method for depreciation. On 31 March 2018, the fair value less costs to sell for the machinery is $890 000, and the value-in-use is estimated to be $900 000. On 31 March 2019, the fair value less costs to sell for the machinery is $820 000, and the value-in-use is estimated to be $800 000.

(i) At 31 March 2018, prepare the journal entry to recognise the impairment loss. Show all workings.

(ii) Prepare the PPE section, in the Statement of Financial Position as at 31 March 2018, after recognising the impairment loss. What should your carrying amount be equal to?

(iii) What is the new annual depreciation rate for the machinery for the year ending 31 March 2019?

(iv) At 31 March 2019, prepare the journal entry to recognise the reversal of the impairment loss.

(v) Prepare the PPE section, in the Statement of Financial Position as at 31 March 2019, after the reversal of the impairment loss. What should your carrying amount be equal to?

(vi) What is the new annual depreciation rate for the machinery for the year ending 31 March 2020?

Expert Solution

(i)	Annual Deprecaition	100,000	=1200000/12

	Carrying amount on 31 March 2018 before impairment	1,000,000	=1200000-100000-100000

	Recoverable Amount	900,000	(Higher of 900,000 or 890,000 )

	Impairment Loss	100,000	= 1,000,000 - 900,000

Account Tiles	Debit $	Credit $
Loss on Impairment	100,000
Machinery		100,000

(ii)	Statement of Financial Position
	Non-Current Assets
	Machinery (Carrying amount )	$ 900,000	= 1,000,000 - 100,000


(iii)	New depreciation for 2019	$ 90,000	=900,000 / 10

(iv)	Carrying amount on 31 March 2018 before impairment reversal	810,000	=900000-90000

	Recoverable Amount	820,000	(Higher of 800,000 or 820,000 )

	Impairment gain	$ 10,000	=820000-810000

Account Tiles	Debit $	Credit $
Machinery	10,000
Reversal of Impairment loss		10,000

(v)	Statement of Financial Position
	Non-Current Assets
	Machinery (Carrying amount )	$ 820,000	= 810,000 + 10,000


(vi)	New depreciation for 2020	$ 91,111	=820000 / 9

ekkarill92 answered 2 years ago

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