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Wilderness owns and operate an item of plant that cost $640,000 and had accumulated depreciation of $400,000 at 1st October 20×4. It is being depreciated and 12.5% on cost. On 1st April 20×5 (exactly half way through the year) the plant was damaged when the factory vehicle collided into it. Due to the unavailability of the replacement parts, it is not possible to repair the plant. but it still operates, albeit at a reduced capacity.
Also, it is expected that as a result of the damage the remaing life of the plant from the date of the damage will be only two years. Based on it’s reduced capacity, the estimated present value of the plant in use is $150,000. The plant has a current disposal value of $20,000 (which will be nil in two years time), but Wilderness has been offered a trade in value of $180,000 against a replacement machine which has a cost of $1 million (there would be no disposal costs for the replaced plant).
Wilderness is reluctant to replace the plant as it is worried about the long-term demand for the produce produced by the plant. The trade in value is only available if the plant is replaced.
Required: Prepare the extracts from the Statement of Financial Position and Statement of Profit and Loss of Wilderness in respect of the plant for the year ended 30 September 20×5.
From 1st october x4 to 1st April x5 (collision date) depreciation charge was 15,000 ($240,000 x 12.5% x 6/12).
I picked the Recoverable Amount of 180,000 as its higher from it’s present value of future cash flow which is 170,000 (150000 + 20000).
Depreciation charge for the next 6 months of accounting period is 11,250 ( 180000 x 12.5% x 6/12)
Profit and Loss extract therefore will show an impairment loss of 45000 and depreciation charge of 26250 (15000 + 11250)
Statement of Profit and Loss will show the carrying value of plant 168750.
Am I right, sir?
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