[arvindkang96]

Hi, just going through CIMA F1 and I can see a question which online has a wrong answer I believe.. can you help please? I came to the answer of P/L DR 90,000 Total Impairment 140,000.

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?

The CIMA answer seems to show the below answer..

31 Dec 20X5
(500,000 – (450,000 – $50,000)/50 x 45)) 140,000
1 Jan 20X6 revalued amount 500,000
Depreciation 20X6 ($450,000 / 45) (10,000)
31 Dec 20X6 carrying amount 490,000
31 Decn 20X6 recoverable amount 350,000
Total impairment 140,000

Allocated first against revaluation surplus (140,000) (140,000)
Remainder charged as P&L expense Nil Nil

[Author]

Posts