Question

At the end of 2020, Fyton owns a piece of equipment with a book value of $400,000 and a remaining life of 15 years. Undiscounted future cash flows from the equipment will be $380,000; discounted future cash flows will be $340,000. Fair value is $360,000 with disposal costs of $15,000. Fyton uses IFRS.                                                                                                                                                 

Required:                                                                                                                                            

(a)    Determine if the equipment is impaired at tend of 2020 and prepare any necessary journal entries.

(b)   Assume the recoverable amount is calculated to be $380,000 at the end of 2021. Determine if the equipment is impaired at end of 2021 and prepare any necessary journal entries.

(c)    How would your response be different if the company followed ASPE? (No journal entries necessary)   

Answer 1

Book Value= 400000

Value in use =Discount future cash flows= 340000

Net fair value= 360000-15000= 345000

recoverable amount= higher of 340000 or 345000= 345000

Impairment loss= 400000- 345000= 55000

A) Journal entry at the end of 2020

Impairment loss debit 55000

To equipment account 55000

Statement of Profit loss debit 55000

To Impairment loss account 55000

B) Recoverable amount= 380000

Current book value would be less than 380000 considering straight line depreciation for 15 years so no impairment loss.

C)ASPE determines an impairment loss as the excess of the carrying amount above fair value. IAS 36 determines an impairment loss as the excess of the carrying amount above the recoverable amount (the higher of fair value less costs to sell and value in use).

So at the end of 2020 400000-345000=55000 so no impact