On 1 July 2019, it is discovered that the damage to the machine is worse than originally thought. The machine is now considered to be worthless and the recoverable amount of the factory as a cash-generating unit is estimated to be $950,000. At 1 July 2019, the cash-generating unit comprises the following assets: $’000 Building 500 Plant and equipment (including the damaged machine at a carrying amount of $35,000) 335 Net current assets (at recoverable amount) 250 1,085 In accordance with HKAS 36 ‘Impairment of Assets’, what will be the carrying amount of Phoenix’s plant and equipment when the impairment loss has been allocated to the cash-generating unit on 1 July 2019? A $262,500 B $300,000 C $237,288 D $280,838
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.
On 1 July 2019, it is discovered that the damage to the machine is worse than originally
thought. The machine is now considered to be worthless and the recoverable amount of
the factory as a cash-generating unit is estimated to be $950,000. At 1 July 2019, the
cash-generating unit comprises the following assets:
$’000
Building 500
Plant and equipment (including the damaged machine at a carrying amount
of $35,000)
335
Net current assets (at recoverable amount) 250
1,085
In accordance with HKAS 36 ‘Impairment of Assets’, what will be the carrying amount
of Phoenix’s plant and equipment when the impairment loss has been allocated to the
cash-generating unit on 1 July 2019?
A $262,500
B $300,000
C $237,288
D $280,838
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