Question

A machine which has been classified as property,plant and equipment (IAS 16) and measured using the cost model has a correctly calculated carrying amount of N$50 000 immediately before being classified as 'held for sale'. On thew date of classification, it has a fair value of N$75 000 and estimated costs to sell of N$15 000. The transfer to the held for sale classification will result in the following:

Answer 1

The carrying amount is $ 50,000. This is net of deprecation.

Since asset is reclassified as held for sale, we shall recognise gains/losses due to reclassification. Ie.,

Computation of gains/losses on classification ($)

Fair value of asset	75,000
Less: Costs to sell	15,000
Net fair value	60,000
Less: Carrying value	50,000
Gain	10,000

The jounral entry will be as follows:

Old Machinery - Held for Sale Dr (75000-15000)	60,000
To gains on Held for Sale		10,000
To Old Machinery - Cost less accumulated deprecation		50,000
(machinery reclassified)