Question

ABC Ltd acquired a machine for $750 000 on 1 July 2018. The machine had a useful life of five years and was depreciated on a straight-line basis with no disposal value. ABC Ltd adopts the cost model for accounting for assets in this class. ABC Ltd makes the following estimates of the value of the machine: Date Net selling price Value in use Fair Value 30 June 2019 $550 000 520 000 590 000 30 June 2020 $460 000 420 000 490 000 Indicators of impairment were identified on 30 June 2019, while indicators of a reversal of impairment were found on 30 June 2020.

REQUIRED: Prepare journal entries relating to this asset from 30 June 2019 to 30 June 2020. Show the steps of impairment (or reversal of impairment) tests. Show all working (step by step).

Answer 1

Impairement exists when asset's market value is less than carrying value on the balance sheet

Case	Date	Particulars	Debit ($)	Credit($)	Working Notes
1	30-Jun-19	Impairement Loss a/c	50000		W.No-2
		To asset		50000
		(Being impairement Loss)
2	30-Jun-19	Impairement Loss a/c	80000		W.No-2
		To asset      a/c		80000
		(Being impairement Loss)
3	30-Jun-19	Impairement Loss a/c	10000		W.No-2
		To asset      a/c		10000
		(Being impairement Loss)
Case
1	30-Jun-20	Asset a/c	10000		W.No-4
		To Impairement Loss		10000
		(Being impairement loss to be reversed)
2	30-Jun-20	Impairement Loss a/c	30000		W.No-4
		To asset      a/c		30000
		(Being impairement Loss)
3	30-Jun-20	Asset a/c	10000		W.No-4
		To Impairement Loss		10000
		(Being impairement loss to be reversed)

Working Note-1	Caluculate book value as on 30 june 2019
	Acquired value as on 01 july 2018	$ 750000
	Less Depreciation 750000/5	($150000)
		$600000
Working Note-2	Caluculate Impairement Loss
Case-1	Market Value as on 30 june 2019	$550000
	less Book Value as on 30 june 2019	($600000)
		($50000)
Case-2	Market Value as on 30 june 2019	$520000
	less Book Value as on 30 june 2019	($600000)
		($80000)
Case-3	Market Value as on 30 june 2019	$590000
	less Book Value as on 30 june 2019	($600000)
		($10000)
Working Note-3	Caluculate book value as on 30 june 2020
	Book value as on 30 th june 2019	$ 600000
	Less Depreciation 750000/5	($150000)
		$ 450000
Working Note-4	Caluculate Impairement Loss
Case-1	Market Value as on 30 june 2020	$460000
	less Book Value as on 30 june 2020	($450000)
	No impairement	$10000
Case-2	Market Value as on 30 june 2020	$ 420000
	less Book Value as on 30 june 2020	($ 450000)
		($30000)
Case-3	Market Value as on 30 june 2020	$490000
	less Book Value as on 30 june 2020	($450000)
	No Impairement	$40000