Question

At the end of 2020, MercuEmas Bhd estimates the followings relating to the machine:

1) The remaining useful life of the building is 5 years;

2) The cash inflows and outflows from the building will be RM25,000 and RM10,000 respectively per year;

3) The fair value of the building is RM30,000; legal fees RM1,000; stamping fee RM500; and brokerage fee RM500 are expected to be incurred to dispose off the machine and,

4) The market prevailing interest rate is 3 percent.

Required:.

i. Calculate the CA.

ii. Calculate the RA.

iii. Determine the IL if any.

iv. Prepare the necessary journal entries to record the impairment loss if any.

v. Prepare the partial statement of financial position to show the presentation of the machine.

Answer 1

1) Carrying Amount

Fair Value of building = RM30000

2)Recoverable Amount

= Higher of ( fair value less costs of disposal and PV of future cashflows )

= Higher of (28000 and 68700)

=RM68700

3) Impairement loss

Recoverable amount is more than carrying amount so there is no impairement loss for this year.

Statement of financial position

Non-Current Assets

Building RM30000

  Depreciation (30000/5)    (6000)

Carrying Amount RM24000   

  Note

a) Fair value - costs of disposal = 30000-1000-500-500

= RM 28000

b)PV of cashflows   = (25000-10000)* 4.58

= RM 68700