Balloon Ltd (Balloon) purchased an item of equipment on 1 July 2015 for $2 million. At that time che useful life of the equipment was assessed to be 10 years, with no residual value. Balloon applies the cost model to its equipment. On 30 June 2020 the recoverable amount of the equipment was assessed to be $900,000. Accordingly, an impairment loss of $100,000 was recognised. The useful life of the equipment remained at five years. On 30 June 2023 (three years later) the same equipment's carrying amount is $360,000 and its recoverable amount is $450,000.

Balloon Ltd (Balloon) purchased an item of equipment on 1 July 2015 for $2 million. At that time che useful life of the equipment was assessed to be 10 years, with no residual value. Balloon applies the cost model to its equipment. On 30 June 2020 the recoverable amount of the equipment was assessed to be $900,000. Accordingly, an impairment loss of $100,000 was recognised. The useful life of the equipment remained at five years. On 30 June 2023 (three years later) the same equipment's carrying amount is $360,000 and its recoverable amount is $450,000.

Name: Balloon Ltd (Balloon) purchased an item of equipment on 1 July 2015 f
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Description: Balloon Ltd (Balloon) purchased an item of equipment on 1 July 2015 for $2 million. At that timethe useful life of the equipment was assessed to be 10 years, with no residual value. Balloonapplies the cost model to its equipment.On 30 June 2020 the

FINANCIAL ACCOUNTING

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Chapter1: Financial Statements And Business Decisions

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Concept explainers

Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.

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Question

Balloon Ltd (Balloon) purchased an item of equipment on 1 July 2015 for $2 million. At that time
the useful life of the equipment was assessed to be 10 years, with no residual value. Balloon
applies the cost model to its equipment.
On 30 June 2020 the recoverable amount of the equipment was assessed to be $900,000.
Accordingly, an impairment loss of $100,000 was recognised. The useful life of the equipment
remained at five years.
On 30 June 2023 (three years later) the same equipment's carrying amount is $360,000 and its
recoverable amount is $450,000.
On 30 June 2023, Balloon should recognise:
an impairment reversal of $10,000
an impairment reversal of $90,000
an impairment reversal of $40,000
O nil, because the recoverable amount of the asset exceeds its carrying amount

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