Question

GCA Ltd reported the following information in its statement of financial position at 30 June 2020: Plant $650,000 Accumulated depreciation – plant (150,000) Intangible assets 300,000 Accumulated amortisation (100,000) Land 300,000 Total non-current assets 1,000,000 Cash 50,000 Inventory 180,000 Total current assets 230,000 Total assets $1,230,000 Liabilities 150,000 Net assets $1,080,000 At 30 June 2020, GCA Ltd analysed the internal and external sources of information that would indicate deterioration in the worth of its assets. It determined that there were indications of impairment. GCA Ltd calculated the recoverable amount of the assets to be $980,000. Provide the journal entry for any impairment loss at 30 June 2020. Show all calculations.

Answer 1

Solution:

The journal entry to record the impairement loss is

Impairement loss a/c Dr	$250,000
To accumulated depreciation and impairement loss a/c - plant		$125,000
To accumulated amortisation and impairement losses- Intangibles a/c		$50,000
To Land a/c		$75,000
(Being allocation of impairement loss)

Explanation:

Carrying amount of assets = $1,230,000

Recvorable amount = $980,000

Impairment loss = (1,230000-980000) = $250,000

assuming that the inventory is carries at the lower of cost and net realisable value, the allocation of the impairement loss will not involve both cash and inventory

The allocation of impairement loss is as follows:

	Carrying amount	Proportion	Allocation of loss	Net carrying amount
Plant	500,000 (650000-150000)	5/10 (500000/1000000)	125,000 (250000x5/10)	375,000 (500000-125,000)
Intangible	200,000 (300000-100000)	2/10 (200000/1000000)	50,000 (250000x2/10)	150,000 (200000-50000)
Land	300,000	3/10 (300000/1000000)	75,000 (25000x3/10)	225,000 (300000-75,000)
Total	1000,000 (500000+200000+300000)		250,000