Question

Spear Ltd reported the following information in its statement of financial position at 30 June 2020:

                   Plant                                                    $325 000

                   Accumulated depreciation – plant        (75 000)

                   Intangible assets                                    150 000

                   Accumulated amortisation                    (50 000)

                   Land                                                      150 000

                   Total non-current assets                         500 000

                   Cash                                                         25 000

                   Inventory                                                  90000

                   Total current assets                                115 000

                   Total assets                                          $615 000

                   Liabilities                                                 75 000

                   Net assets                                         $540 000

At 30 June 2020, Spear Ltd analysed the internal and external sources of information that would indicate deterioration in the worth of its assets. It determined that there were indications of impairment.

Spear Ltd calculated the recoverable amount of the assets to be $490 000.

Required

Provide the journal entry for any impairment loss at 30 June 2020

Answer 1

Solution:

The journal entry to record the impairement loss is

Impairement loss a/c Dr	$125,000
To accumulated depreciation and impairement loss a/c - plant		$62,500
To accumulated amortisation and impairement losses- Intangibles a/c		$25,000
To Land a/c		$37,500
(Being allocation of impairement loss)

Explanation:

Carrying amount of assets = $615,000

Recvorable amount = $490,000

Impairment loss = (615000-490000) = $125,000

assuming that the inventory is carries at the lower of cost and net realisable value, the allocation of the impairement loss will not involve both cash and inventory

The allocation of impairement loss is as follows:

	Carrying amount	Proportion	Allocation of loss	Net carrying amount
Plant	250,000 (325000-75000)	5/10 (250000/500000)	62,500 (125000x5/10)	187,500 (250000-62500)
Intangible	100,000 (150000-50000)	2/10 (100000/500000)	25,000 (125000x2/10)	75,000 (100000-25000)
Land	150,000	3/10 (150000/500000)	37,500 (125000x3/10)	112,500 (150000-37500)
Total	500,000 (250000+100000+150000)		125,000