darby 12/09

You're ok with the cost calculation of $110,000? Well, we have spent to date $58,000. therefore we have a further $52,000 to complete. When we are considering impairment, we need to look at the net cash flows. There are predicted 3 x $50,000 inflows and we have just calculated that there are $52,000 outflows. That gives us net inflows of $150,000 less $52,000 = $98,000 Is that ok?

Sir I am still not sure about that why did we do the last step and isnt the cost 110,000 why total revenue and just the cost to be incurred

Impairment occurs when the carrying value exceeds the recoverable amount. The carrying value is the amount so far capitalised ie $58,000 and the recoverable amount is the higher of value in use and net selling price. Value in use is the present value of the future cash flows associated with this asset. Future cash flows are the revenue stream less the costs still to be incurred. Need I go on?

Yes

Could you please clearly tell what is carrying value and value in use and recoverable amount in this question

Hi, You would need to find the question set in Decebmer 2009, which is 9 years ago, so I'd recommend that you focus on the more recent exam questions. Thanks