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hello sir
this was the question that was asked before but the way i approached it was a little different i was hoping that you could shed some light on the situationOn 30 September 20X3, Maykorn Co moved out of one of its properties and put it up for sale. The property met the criteria as held for sale on 30 September 20X3. On 1 October 20X2, the property had a carrying amount of $2.6m and a remaining life of 20 years. The property is held under the revaluation model. The property was expected to sell for a gross amount of $2.5m with selling costs estimated at $50,000
What is the total amount charged to Maykorn Co’s profit or loss and SFP in respect of the property for the year ended 30 September 20X3?
the way i answered it was by producing T accounts of property,dep’n expense,accumulated dep’n,imp’t expense,accumulated imp’t
1)the first thing i did was to credit the property account for 100k to bring it down to 2.5m and debited the revaluation account
2)now i DR dep’n expense 130k and CR acc’ed dep’n 130k
3) i DR imp’t expense 50k and the accu’ed imp’t for 50k
and lastly i DR acc’ted dep’n for 130k and credited the revaluation account which gave me the gain on revaluation of 30k to be recorded in other comprehensive income
now heres my problem
when we go back to the good days of FA when we were about to record a depreciation we didnt just credited the asset account and debited the expense account because it wasnt “neat” to do so , so why do we do it for impairment? why cant we just create accumulated impairment account and if we did why cant we debit the accumulated impairment and credit the revaluations so that it’ll show a gain of 80k instead of just 30k?
and if we cant debit the accumulated imp’t when the asset is sold it doesnt really make sense because the asset is gone but we’ll still record the acc’ted imp’t in the SFP
thank you for your time
Hi,
I’m not too sure why you are using T-accounts to answer the question when they aren’t really necessary. You can do straightforward calculations of depreciation to calculate the carrying value prior to it then being impaired when held as a NCA-HFS.
If you are thinking T-accounts in the way that you are then we don’t use an accumulated impairment account. Think about the impairment as being an additional depreciation charge on the asset, so treat it as you would any normal depreciation adjustment. All we are then doing is re-naming the additional depreciation as an impairment.
Thanks
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HI mr.chris
you said”Think about the imp’t as being an ADDITIONAL depreciation on the asset” now that statement has ZERO fat on it and is absolutely true BUT i think that you agree with me that ADDITIONAL depreciation isnt the same as depreciation(otherwise why even bother making the difference?)
my question is GIVEN the circumstances to which we did make an accumulated imp’t account when do we get rid of it?
and my guess is : when we dispose of the asset duh! but i also think that the reason we get rid of it at disposal and not at the reclassification of the asset as HFS is that in theory we could incur further imp’t in the duration we are holding it for sale untill its sold but we CAN’T incur further depreciation thats why we close acc’ed dep’n off at the date of reclassification
now i got MASSIVELY criticized 😀 for the use of T accounts and in my defence i should say that i just LOVE the T accounts it’s just something about them that speaks to me i can’t help myself or do anything about it to the point it distorted my view on reality, i also think that there are ONLY 2 types of people in this world DEBITS AND CREDITS
thanks!
Hi,
T-accounts are so important but sometimes their use makes things more challenging, so continue to use them as it does aid the fundamental understandings but then think about how to do some of the calculations without the T-accounts. As for debits and credits, then life wouldn’t be worth living without them 😉
So, we wouldn’t use an accumulated impairment account but if you were to do so, and maybe you’d be the first person ever to do so (a claim to fame) then you would get rid of it when the assets was disposed of or scrapped.
Hope that all makes some sense.
Thanks
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