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The company acquired a machine at a cost of $400 in the year 2001.
The company policy is to charge deprecation straight line basis @10%.
The useful life of machine is 10 years.
At the end of 2002 year the recoverable amount of the machine was estimated Was estimated as $300 causing an impairment loss.
Again after 4 years of acquisition of machine due to technological changes the recoverable amount was estimated as $272 causing a reversal of impairment loss.Please Could you tell me the last entry of reversals of impairment loss and deprecation at the end of year 2004 ?
I have to assume (because you haven’t made it clear) that the machine was bought on the first day of the accounting period in 2001 or that the company charges a full year’s depreciation in the year of purchase
Cost 400, depreciate 2 years at 40 to 2002 so cv now 320
Impair by 20 down to 300
Depreciate 2 more years at 37.5 (8 years left and 300 to depreciate) brings cv down to 225
Revalue to 272…….but no! Cannot revalue to a position that is greater than the asset would have been in if there had been no impairment. Without impairment, 400 depreciated for 4 years at 10% straight line would have had a cv of 240 and that’s the limit of our reversal
Plus, we have to reverse first the statement of profit or loss impairment of 20
So your journal entry becomes
Dr Asset 15 (240 – 225)
Cr Cost of sales 15 (reversing the impairment)Depreciation at end year 4? I’ve already depreciated before I did the revaluation.
Depreciation going into the future, assuming still 6 years left, will be 40 per annum
OK?
Thanks a lot sir I have got a point. But there is some confusion in deprecation . In the solution of this question. The entry passed
Accumulated impairment loss 20
P&l a/c 15
Accumulated deprecation 5The above 2 point I got but why accumulated deprecation is 5.I m trying to pick the point but failed.
The answer apparently has chosen to reverse completely the previous impairment – when compared with my answer, they have increased the asset by the full 20 but are only technically able to increase by 15 so the extra 5 has been included within the asset increase and also in the provision for depreciation increase
Overall, the answer is the same as mine
OK?
Dear Sir,
What is commpany was using revaluation model.Could the asset value go above what it would have been,had there been no impairment.I assume after reversing impairment extra will go to OCI and asset will be recorded at new FV.
In that case reversal will cause an increase in value of asset more than what it would have been if there was no impairment?
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