Question

n 1 July 2014, Atropos Company purchased a depreciable asset at a cost of $1.2 million. The asset had an estimated useful life of 12 years and was depreciated on a straight-line basis. The recoverable amounts of the asset were as follows:

ear ended 30 June	Recoverable amount
2015	$1 000 000
2016	900 000
2017	800 000
2018	850 000

Indicators of impairment were identified on 30 June 2015, 2016 and 2017, while indicators of a reversal of impairment were found on 30 June 2018. The asset was sold on 1 July 2018 for $860 000.

Assuming that the company adopts the cost model for accounting for non-current assets and complies with AASB 116 ‘Property, Plant and Equipment’ and AASB 136 ‘Impairment of Assets’, show the general journal entries for the asset from 1 July 2014 to 1 July 2018.

Answer 1

Journal entries are as follows:

Depreciation amount = Total cost/Useful life of asset = 1,200,000/12 = 100,000

Impairment loss as per AASB 136 is recognized when the recoverable amount of the asset is lower than the carrying value(Cost-accumulated depreciation) as on that date. On 30/06/2015, carrying value was 1.1 million and recoverable amount was 1 million, therefore 100,000 was taken as impairment loss. On 30/06/2016 and 30/06/2017, carrying value of the asset was 900,000 and 800,000 respectively. Since recoverable amount was equal to the carrying values on these dates, no impairment loss has been recorded.

On 30/06/2018, the recoverable amount was 850,000. However, as per AASB 136, where there is a reversal of impairment loss, the increased carrying amount of the asset shall not exceed the carrying amount that would have been determined had no impairment loss been recognized in the prior years.

Therefore, if we exclude the impairment loss of 100,000, the carrying value of the asset on 30/06/2018 would be= 1,200,000 - 400,000 = 800,000. Since the recoverable amount is more than the carrying value, we must revalue the asset only to the extent of the 100,000.

On sale of the asset, since the carrying value is 800,000 and the sale value is 860,000, the profit on the same is 60,000.