Question

Thomas Corporation’s balance sheet includes the following asset:
Equipment $110,000
Less: Accumulated depreciation (20,000)
Carrying amount (book value) $90,000
After performing its annual review for impairment, Thomas obtains the following data:
Asset value in use $64,000
Fair value less selling costs $67,000

Assuming that Thomas Corporation follows IFRS:

a. Calculate the recoverable amount.

b. Calculate the impairment loss.

c. Prepare the journal entry to record the impairment loss.

d. Which of the two impairment models does not permit the reversal of loss on impairment?

Answer 1

Carrying value of equipment = $90,000

Asset value in use = $64,000

Fair value less selling costs = $67,000

A. Recoverable amount = Higher of the fair value less selling costs or the asset value in use.

Here, the higher amount is asset’s fair value less selling costs, So recoverable amount = $67,000

B. Impairment loss = Carrying value of asset – Recoverable amount

                                           = $90,000 - $67,000

                                            = $23,000

C. Journal entry to record the impairment loss would be:

Particulars	Debit Amount	Credit Amount
Impairment loss	$23,000
Equipment		$23,000
(Being impairment loss incurred on equipment)

D. The reversal of impairment loss is not allowed under cost model of impairment as under cost model, once impaired, the new cost is assumed to be cost of the asset to be carried for future years. This is in contrast to revaluation model, where the asset value may be increased with increase in market value in the future.