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Vanguard Company acquired a depreciable asset on 1 July 2017 for $500,000, paid in cash. The...

Vanguard Company acquired a depreciable asset on 1 July 2017 for $500,000, paid in cash. The asset was estimated to have a useful life of ten years and was depreciated on a straight-line basis. Vanguard chose the cost model for accounting for assets in this class. Disposal value at the end of the useful life is zero. Indicators of impairment have been identified for the reporting periods ended 30 June 2018, while indicators for a reversal of impairment have been identified for the reporting period ended 30 June 2019. There was no change in the estimated useful life or the disposal value of the equipment.

The recoverable amounts of the depreciable asset on these days were as follows:

Date                            Recoverable amount

30 June 2018                      $360,000

30 June 2019                      $340,000

REQUIRED:                                                                                                                  

Prepare journal entries, including narrations, relating to this depreciable asset from 30 June 2018 to 30 June 2019, assuming that the company complies with AASB 116 – ‘Property Plant and Equipment’ and AASB 136 – ‘Impairment of Assets’. Show all

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Expert Solution

Answer.

Vanguard Company - journal Entries.

1 July 2017

Asset account    Dr. $ 500000

To Cash account. Cr. $ 500000

(Being asset purchases)

30 June 2018

Depreciation account. Dr 50000

To Accumulated depreciation Cr. 50000

(Being depreciation for the year 2017-18)

Impairment loss account. Dr 126000

AccumulatedDepreciation a/c Dr 14000

To Assets account. Cr 140000

(Being impairment loss account transferred to asset account)

30 June 2019

Depreciation account Dr.36000

Accumulated Depreciation Cr.36000   

(Being depreciation for the year 2018-19)

Assets account Dr 16000

To reversal of impairment loss. Cr.16000

(Being reversal impairment loss account transferred to asset account)

------------------------------------------------------------

Notes

Impairment loss

An impairment loss is recognized through a journal entry that debits Loss on Impairment, debits the asset's Accumulated Depreciation and credits the Asset to reflect its new lower value.

Reversal of impairment loss

If due to any event the impaired asset regains its value the gain is recorded in income statement to the extent of original impairment loss and any excess is considered a revaluation and is credited to revaluation surplus.

ekkarill92 answered 2 years ago
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