Question

On 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:

Year 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.

Required

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

Year ended 30 June	Carrying Value as per straight-line depreciation	Recoverable amount	Impairment Loss/Gain
Jul-15	1100000	1000000	-100000
Jul-16	1000000	900000	-100000
Jul-17	900000	800000	-100000
Jul-18	800000	850000	50000

As per AASB rules, if recoverable amount is lesser than Carrying Value, there is an impairment loss that must be recognized. In the same way, if recoverable amount is higher than Carrying Value, there is an impairment gain that must be recognized.

Impairment of assets and Reversal of impairments:

Date	Account	Debit	Credit
01-Jul-14	Assets	$1,200,000
	Cash		$1,200,000
	Acquisition of Assets
30-Jun-15	Impairment Loss	$100,000
	Accumulated impairment losses		$100,000
	Impairment Loss on Asset being recognized
30-Jun-16	Impairment Loss	$100,000
	Accumulated impairment losses		$100,000
	Impairment Loss on Asset being recognized
30-Jun-17	Impairment Loss	$100,000
	Accumulated impairment losses		$100,000
	Impairment Loss on Asset being recognized
30-Jun-18	Accumulated impairment losses	$50,000
	Reversal of impairment loss		$50,000
	Reversal of impairment loss of asset being recognized

As per AASB 136, an impairment reversal has a ceiling of $50,000. Since the reversal amount is under the ceiling, all amounts can be reversed.