In: Accounting
This is a question of Non-Current Assets held for sale(IFRS 5).
To recognise a Property Plant and Equipment as a Non-Current Assets held for sale, the following conditions must be fulfilled:
1.The asset must be available for immediate sale and the sale must be highly probable.
2.There must be a active programme to locate buyers for sale and the management must be commited to sale the asset.
The above conditions are satisfied in the question above and hence we can recognise it as a Non-current asset held for sale.
VALUATION OF NON-CURRENT ASSET HELD FOR SALE: They are valued at the LOWER OF (1)CARRYING VALUE & (2)FAIR VALUE LESS COST TO SELL. ANY REDUCTION IN THE VALUE IS RECORDED AS AN IMPAIRMENT THROUGH THE STATEMENT OF PROFIT & LOSS A/C.
In the question the(1) Carrying Value= €20000 less €4000 =€16000 (€4000 is the depreciation of 2 years)
(2)Fair value Less cost to sell= €15000 less €500= €14500
So the machine will be valued at lower of the above ie €14500 and the difference of €1500 will be recorded as impairment through profit & loss account.
Journal Entry
Non-current assets-Held for sale A/c (Dr) €14500
Statement of Profit & Loss A/c (Dr) €1500
To Property Plant & Equipment A/c (Cr) €16000