Chapter 7: Impairment of assets Application and analysis exercise 1. Reversal of
ID: 2518829 • Letter: C
Question
Chapter 7: Impairment of assets Application and analysis exercise 1. Reversal of impairment losses Saxon Ltd conducted an impairment test at 30 June 2018. As a part of that exercise, it measured the recoverable amount of the entity, considered to be a single CGU, to be $217 600. The carrying amounts of the assets of the entity at 30 June 2018 were: Equipment Accumulated depreciation Patent Goodwill Inventories Receivables $ 200000 (40000) 40000 6400 32 000 1 600 The receivables held by Saxon Ltd were all considered to be collectable. The inventories were measured in accordance with AASB 102/IAS 2 Inventories. For the period ending 30 June 2019, the depreciation charge on equipment was $14 720. If the plant had not been impaired the charge would have been $20 000. At 30 June 2019, the recoverable amount of the entity was calculated to be $10 400 greater than the carrying amount of the assets of the entity. As a result, Saxon Ltd recognised a reversal of the previous year's impairment loss. Required the journal entrylies) accounting for the impairment loss at 30 June 2018 and the reversal of the impairment loss at 30 June 2019.Explanation / Answer
Total carrying value of the assets of the company as on June 2018 is
Equipment = 200,000 - 40,000 = 160,000
Patent = 40,000 Goodwill = 6400 Inventories = 32,000 Receivables = 1600
Total = 240,000
Recoverable amount of CGU = $217,600 therefore the impairment loss to be booked
= 240,000 - 217,600 = $22,400
Entry will be
Impairment loss dr. 22,400
To Accumulated impairment loss 22,400
For the period of June 2019.
the amount of 10,400 is more than the carrying amount therefore the
reversal entry will be
Accumulated Impairment loss dr. $10,400
to Profit & Loss A/c $10,400