ACCA FR · Guided practice (Show me how)
Chapter 7: Impairments (IAS 36)
Impairment of an individual asset: cost model and revalued asset
Impairment. A machine was acquired on 1 January 20X5 at a cost of $50,000 and has a useful economic life of ten years. At 31 December 20X9 an impairment review was performed. The fair value of the machine is $26,000 and the selling costs are $2,000. The expected future cash flows are $5,000 per annum for the next five years. The current cost of capital is 10%. An annuity factor for this rate over this period is 3.791. Prepare extracts from the financial statements for the year ended 31 December 20X9.
Individual asset impairment. A building was bought on 1 January 20X1 at a cost of $1,000,000 and has a useful life of 20 years. The company uses the revaluation model for its land and buildings, and on 31 December 20X5 the fair value of the building was $1,125,000. The company opts to transfer any excess depreciation on the revalued amount to retained earnings. On 31 December 20X7 a fall in the market value of property led to an impairment review on the building, which revealed the value of the building to be $600,000. Explain how the impairment of the building should be dealt with in the financial statements for the year ended 31 December 20X7.
(a) Example 1: the impairment review of the machine
Calculate the machine's carrying amount, fair value less costs to sell, value in use and impairment loss at 31 December 20X9.
(b) Example 2: the revalued building
Calculate the building's carrying amount and revaluation surplus at 31 December 20X7 before the impairment, the total impairment loss and the part of it recognised in profit or loss.
Opening this exercise…