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Trial balance at 30/6/07 has plant value at 176,200 and accumulated Dep at 48600.It is depreciated at 20% reducing balance method per annum.The balance on plant and equipment included a specilaist machinery that cost $70,000 on i july 2005.On 30 june 2007 a forklift truck reversed into machinery causing severe damage .The owner of plant has two possible options:
1. sell the machine
A potential buyer has been located, who has indicated that she would pay 80% of the carrying value amount at 30 june 2007.
However, she has insisted that the machine is repaired before she buys it.The repair work will be done by Plant owner employees and will take about 120 hours of skilled labour ,the associated cost with this labour is $2,160.In addition the plant owner will have to deliver the machinery to the buyer at a cost of $2100 and there will be a single premium insurance cost of $580 for the journey.2. Repair the machine and continue to use it
The financial controller has estimated that the pv of the cash flows generated from future use ( including repair cost) amount to $31800.calculate:
1.the carrying value of the asset as at 30/6/2007
2. The impairment value of the assetAnd what answer do you arrive at and how does your answer compare with the printed solution?
My calculation gives me figures of 44,800 and 31,000
I can agree 44,800 as the carrying value
Now to find the net selling price and value in use
Nsp starts with 80% x 44,800 = 35,840
Deduct from that the repair cost of 2,160, the delivery cost of 2,100 and the insurance of 580 and the net selling price is therefore 31,000
Value in use is 31,800 less the repair cost of 2,160 = 29,640
The higher of these two values is 31,000 and that value is compared with the 44,800 to determine whether the asset is impaired and, if so, by how much
The difference indicates an impairment of 44,800 – 31,000 = 13,800
Your original post asked for “the impairment value of the asset” which I took to mean “the value of the asset after impairment” whereas your later post suggests that you were looking for the extent of the impairment
The extent of the impairment is 13,800, the asset value after impairment is 31,000 and the carrying value before impairment is 44,800
Ok?
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