Impairment — OpenTuition Forums

OOksanaSupporter7y ago

Hi Chris Can you please help me In Bpp practise kit there is a question asking to find out impairment loss and record it in FS Company has machine-cv 85000 MV-78000 less disposal cost 2500. New machine would cost 150000, expects to produce 30000 pa, for next 3y, cost of capital 8% In the answer: recovering amount is higher value in use of the new machine and fair value less disposal of old machine. I don't understand why we are comparing old and new machine. I thought if we look at impairment on one the same machine, old machine, not two different machine which we didn't even buy. Thanks Oksana

P2-D2Tutor7y ago#1

Hi, We need to compare the CV to the recoverable amount. The recoverable amount is the higher of the FVLCTS and the value in use (PV of future cash flows). The FVLCTS is the 78,000 - 2,500 = 75,500 and the PV is calcualted by discounting the 30,000 for the next thre years at 8%. Once we have the recoverable amount the impairment can be calculated. Thanks

OOksanaSupporter7y ago#2

Hi Thank you for your explanation Oksana

P2-D2Tutor7y ago#3

You're welcome!

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