Question

Q1 A machine purchased on 1 July 2019 cost $100 000 and has a zero estimated salvage value. The useful life of the machine is five years. If the machine was sold on 30 September 2021, what would its net book value be?

a. $55 000

b. $45 000

c. $50 000

d. $60 000

Q2 An impairment loss is calculated as the amount by which the:

Select one:

a. carrying amount value of an asset exceeds its original cost

b. carrying amount of an asset is lower than its recoverable amount

c. carrying amount of an asset exceeds its recoverable amount

d. book value of an asset is lower than its original cost

Answer 1

Fair market value is the price the asset would fetch.Another term for this value is "recoverable amount." Once the fair market value is assigned, it is then compared to the carrying value of the asset if it was sold on the market. This is sometimes described as the future cash flow the asset would expect to generate in continued business operations.

In allocating an impairment loss you must make sure that you don't reduce the carrying amount of an asset below the highest of:

Its fair value less cost of disposal;

Its value in use;

Zero.

The journal entry to record an impairment is a debit to a loss, or expense, account and a credit to the related asset.