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Impairment of plant

The plant had a carrying amount of $240,000 on 1 October 20X7. The accident that may have caused impairment occurred on 1 April 20X8 and an impairment test would be done at this date. The depreciation on the plant from 1 October 20X7 to 1 April 20X8 would be $40,000 (640,000 × ?12 and one half?% × ?6 over 12?) giving a carrying amount of $200,000 at the date of impairment.
An impairment test requires the plant’s carrying amount to be compared with its recoverable amount. The recoverable amount of the plant is the higher of its value in use of $150,000 or its fair value less costs of disposal. If Wilderness trades-in the plant it would receive $180,000 by way of a part exchange, but this is conditional on buying new plant which Wilderness is reluctant to do. A more realistic fair value is the plant’s current disposal value of only $20,000. Therefore, the recoverable amount would be its value in use of $150,000 giving an impairment loss of $50,000 ($200,000 ? $150,000). The remaining effect on profit or loss would be a depreciation charge for the last six months of the year. As the damage has reduced the remaining life to only two years (from the date of the impairment) the remaining depreciation would be $37,500 ($150,000 ÷ 2 years × ?6 over 12?).

Extracts from the financial statements for the year ended 30 September 20X8 would be:

Statement of financial position
Non-current assets $
Plant (150,000 ? 37,500) 112,500

Statement of profit or loss
Plant depreciation (40,000 + 37,500) 77,500
Plant impairment loss 50,000

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