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Extracts from trial balance at 31 March, 2010
Leasehold (15 years) property at cost 45,000
Plant and equipment at cost 67,500
Accum depreciation 1.04.09 property 6,000
Accum depreciation 1.04.09 plant 23,500
Prepare the workings for the non-current assets’ depreciation, amortisation and impairment for inclusion within the 2010 financial
statements as appropriate
In order to fund a new project, on 1 October 2009 the company decided to sell its leasehold property. From that date it commenced
a short-term rental of an equivalent property. The leasehold property is being marketed by a property agent at a price of $40 million,
which was considered a reasonably achievable price at that date. The expected costs to sell have been agreed at $500,000. Recent market
transactions suggest that actual selling prices achieved for this type of property in the current market conditions are 15% less than the
value at which they are marketed. At 31 March 2010 the property had not been sold.
Plant and equipment is depreciated at 15% per annum using the reducing balance method.
No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31 March 2010. Depreciation, amortisation
and impairment charges are all charged to cost of sales.And which bit are you stuck with? Post your workings and I’ll try to identify where you are going wrong
for leasehold property
to calculate the impairment loss i should take higher of fair value $39500 and value in use
value in use is it $34000 (40m – (40m* 15%))?
and depreciation how will it be calculated?
“value in use is it $34000 (40m – (40m* 15%))?”
No, the recoverable amount is the higher of value in use (which we have no information for) and net selling price
And net selling price is 85% x $40m = $34m
Amortisation for the period 1 April – 30 September is 6 months at the annual rate of $3,000 so carrying value at the date of re-classification to Asset Held for Sale would be $37.5m ($45m – $6m brought forward + $1.5m for 6 months to 1 October, 2009)
$37.5 carrying value at 1 October, 2009 is then $39.5m ($40m – $.5m) so the $2m surplus is credited to Revaluation reserve
On 30 September, 2010 there is a re-assessment of the realisable value and new evidence suggests that the realistic sales value should be $34m
Assuming that estimated costs to sell are still $.5m that gives a revised net selling price of $33.5m and that represents an impairment loss of $6m
That amount should be charged as an expense through Statement of Profit or Loss
Does that get anywhere near the printed solution?
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