Question

On 1 July 2017, Blenheim Ltd purchased an item of machinery for $280,000. On this date it was estimated that the item of machinery had a useful life of seven years and zero residual value. Blenheim Ltd uses the cost model to measure items of property, plant and equipment and the straight-line method of depreciation. Blenheim Ltd has a 30 June reporting date. In relation to the item of machinery, Blenheim Ltd has identified indicators of impairment for the reporting periods ending 30 June 2019 and 30 June 2020 and indicators for a reversal of impairment for the reporting period ending 30 June 2021. The fair value less costs of disposal and the value in use of the item of machinery on these dates were as follows: Date Fair value less Value in use costs of disposal 30 June 2019 $170,000 $180,000 30 June 2020 128,000 120,000 30 June 2021 125,000 130,000 Required (a) Prepare the journal entries to account for any impairment losses in relation to the item of machinery on 30 June 2019 and/or 30 June 2020.

Answer 1

the methodology that an entity applies to ensure that

its assets are not carried at more than their recoverable amount (i.e. the higher of fair value less

costs of disposal and value in use). With the exception of goodwill and certain intangible assets for

which an annual impairment test is required.

An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount

to be recovered through use or sale of the asset. In such case, the asset is described as impaired

and the Standard requires the entity to recognise an impairment loss.