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Question 4 Saxon Ltd conducted an impairment test at 30 June 2018. As a part of...

Question 4

Saxon Ltd conducted an impairment test at 30 June 2018. As a part of that exercise, it measured the recoverable amount of the entity, considered to be a single cash-generating unit, to be $217,700. The carrying amounts of the assets of the entity at 30 June 2018 were:

Equipment

200,000

Accumulated depreciation

(39,000

)

Patent

39,000

Goodwill

6,300

Inventories

32,000

Receivables

1,600


The receivables held by Saxon Ltd were all considered to be collectable. The inventories were measured in accordance with AASB 102/IAS 2 Inventories.

For the period ending 30 June 2019, the depreciation charge on equipment was $14,790. If the plant had not been impaired the charge would have been $21,000.

At 30 June 2019, the recoverable amount of the entity was calculated to be $10,600 greater than the carrying amount of the assets of the entity. As a result, Saxon Ltd recognised a reversal of the previous year’s impairment loss.

Required
Prepare the journal entries accounting for the impairment loss at 30 June 2018 and the reversal of the impairment loss at 30 June 2019.
(Round your final answers to the nearest whole number. Enter debit entries first, followed by credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

At 30 June 2018, the journal entry to record the impairment is:

Account and explanation

Debit

Credit


The reversal is then accounted for as follows:

Account and explanation

Debit

Credit

Homework Answers

Answer #1
Impairment loss
Equipment 200000
Accumulated depreciation -39000
Patent 39000
Goodwill 6300
Inventories 32000
Receivable 1600
Total Assets 239900
Recoverable amount 217700
Impairment loss 22200
i) At 30 June 2018, the journal entry to record the impairment is:
Account Titles and Explanation Debit Credit
Impairment (Loss) 22200
Patent 3100 (22200-6300)*39000/200000
Goodwill 6300
Accumulated depreciation / impairment loss 12800 (22200-6300)*161000/200000
The reversal is then accounted for as follows:
Account Titles and Explanation Debit Credit
Accumulated depreciation / impairment loss 10600
Income (Reversal of Impairment loss) / Profit & Loss 10600
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