A non-current asset (which has never been revalued) has a carrying amount of £100,000. The asset...

A non-current asset (which has never been revalued) has a carrying amount of £100,000. The asset is being depreciated on a straight-line basis, with a remaining useful life of three years and a residual value of £10,000. The asset is expected to generate net cash inflows of £20,000 per year for the next three years and then to be sold for £10,000. Disposal costs are expected to be negligible. At present, the asset could be sold for £50,000. Disposal costs would be £2,000.

(i) Assuming a discount rate of 10% and that all cash flows occur at the end of the year concerned, determine the asset’s value in use.

(ii) Perform an impairment test for the above non-current asset explaining the appropriate procedure, calculate any impairment loss arising and explain how this should be accounted for (double entry).

(iii) Calculate the amount of depreciation that should be charged in relation to the asset for each of the next three years, assuming that the straight-line method will continue to be used and the residual value remains unchanged.

Expert Solution

ekkarill92 answered 2 years ago

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