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ON 1 JAN 2018 BAL B/D RM 25,000,000.ON 31 DECEMBER 2018 THERE IS A DECLINE IN...

ON 1 JAN 2018 BAL B/D RM 25,000,000.ON 31 DECEMBER 2018 THERE IS A DECLINE IN THE MARKET VALUE OF THE LAND .THE FAIR VALUE LESS COST TO SELL OF THE LAND IS RM20,000,000 AND ITS PRESENT VALUE FUTURE CASH FLOWS IS RM18,000,000.PREPARE A JOURNAL ENTRIES TO RECORD THE TRANSACTION.

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Answer #1

The present value of future cash flows of Land is less than its fair value less cost to sell.

Hence, value of impairment is the difference between the carrying value and the present value of future cash flows.

Value of impairment = RM 25,000,000 - RM 18,000,000

Value of impairment = RM 7,000,000

Date Debit Credit
Dec 31, 2018 Impairment expense RM 7,000,000
          Land RM 7,000,000
To record the impairment of the land
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