Pink Ltd acquired a machine for $450,000 on 1 July 2017. The machine had a useful life of six years and was depreciated on a straight-line basis with no disposal value. Pink Ltd adopted the cost model for accounting for assets in this class. Indicators of impairment and/or indicators of a reversal of impairment losses were identified on 30 June 2018 and 30 June 2020. The estimates of the value of the machine at the end of financial periods were shown as below: Date Net selling price Value in use Fair Value 30 June 2018 $328,000 $315,000 $345,000 30 June 2019 $226,000 $228,000 $243,000 30 June 2020 $161,000 $167,000 $178,000 Do not include commas and dollar sign ($) in your answer. Present $1,000 as 1000. What is the recoverable amount of the machine on 30 June 2018? What is the amount of impairment loss for that machine that the firm should record on 30 June 2018 and 30 June 2019 ? Upon a consideration of a reversal of impairment losses, what is the ceiling on the carrying amount of the machine on 30 June 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.
Pink Ltd acquired a machine for $450,000 on 1 July 2017. The machine had a useful life of six years and was
|
Date |
Net selling price |
Value in use |
Fair Value |
|
30 June 2018 |
$328,000 |
$315,000 |
$345,000 |
|
30 June 2019 |
$226,000 |
$228,000 |
$243,000 |
|
30 June 2020 |
$161,000 |
$167,000 |
$178,000 |
Do not include commas and dollar sign ($) in your answer. Present $1,000 as 1000.
- What is the recoverable amount of the machine on 30 June 2018?
- What is the amount of impairment loss for that machine that the firm should record on 30 June 2018 and 30 June 2019 ?
- Upon a consideration of a reversal of impairment losses, what is the ceiling on the carrying amount of the machine on 30 June 2020?
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