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Hi, could you please explain how to go about this question
CDE purchased a building on 1 January 20X1 at a cost of $450,000. At that date, the building had an estimated useful life of fifty years, with $50,000 estimated residual value.
At 31 December 20X5, the building was revalued to $500,000, with no change in its total estimated useful life or residual value. At 31 December 20X6 it was established that the building contained some construction materials which are now known to be a danger to public health and, at that date, its recoverable amount was revised to $350,000. CDE does not make a transfer of ‘excess depreciation’ within equity.
In the financial statements for the year ended 31 December 20X6, what was the total impairment, and how much of this was this charged as an expense in the statement of profit or loss?
Total impairment $
P&L expense $
Hi,
It is tricky, but firstly you need to depreciate the asset down to its carrying value at 31 December 20X5.
Once you’ve got this carrying value, you can then revalue it to the $500,000.
The new value of $500,000 is the depreciated over the remaining life of the asset, so you can then work out the carrying value on 31 December 20X6.
Following this you can then compare it to the $350,000 and work out the impairment.
Try it, see how you get on and let me know.
Thanks
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