Question

A machine with a useful life of 10 years was purchased at the beginning 0f 2016 for $50,000.

First: If you know a determination was made at the end of 2017 and after calculating depreciation that the asset’s recoverable amount was $32000.

Second: If you know that and at December 31, 2018, before any adjustments are posted, However, a determination is made that the asset’s recoverable amount at this date is 37,000.

Required: the journal entries to consider impairment loss assuming that the company is following the bench mark treatments under the requirements of IAS 16 and 36

Answer 1

a) Depreciaiton = $ 50000/10 = $5000

Carrying amount at the end of the year 2017 =$50000-$5000-$5000 = $ 40000

Assets Recoverable amount = $32000

Impairment Loss = Carrying amount- Recoverable amount = $ 40000- $ 32000 = $ 8000

Jounral Entry for recognition

Impairment Expense (Debit) $ 8000

To Accumulated Depreciaiton and Impairment expense (Credit ) $ 8000

(Being impairment Loss recognised due to Carrying amount is higher than recoverable amount )

2) Carrying amount for Dec 31 2018 = $32000- $5000= $ 27000

Impairment Loss = 0 because the Recoverable amount is greater than the carrying amount