Calculate the value of the impairment loss, if any, for the year ended 31 December 2020.
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.
Fundi Ltd purchased a coffee roasting machine on 1 January 2019 at a cost of R3 300 000. The purpose of the roasting machine is to roast coffee beans produced by the company’s farms. At the date of purchase the machine was expected to have a total useful life of twelve years and a nil
residual value.
A severe drought in 2020 has resulted in a reduced crop yield for that year. As a result of this, the roasting machine’s use has been reduced drastically. On 31 December 2020 management revised the remaining useful life of the machine to six years. Fundi Ltd calculated the following net
Year R Discount factor
2021 720 000 0.926
2022 500 000 0.857
2023 410 000 0.794
2024 350 000 0.735
2025 200 000 0.681
On the 31 December 2020 the market value of the machine was R2 400 000 with estimated costs of disposal of R17 750.
Q.1) Calculate the value of the impairment loss, if any, for the year ended 31 December 2020.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
