Q1: Measurement of recoverable amount

A company has a machine in its statement of financial position at a carrying amount of

Rs.300,000.

The machine is used to manufacture the company’s best-selling product range, but the entry of a
new competitor to the market has severely affected sales.

As a result, the company believes that the future sales of the product over the next three years will
be only Rs.150,000, Rs.100,000 and Rs.50,000. The asset will then be sold for Rs.25, 000.

An offer has been received to buy the machine immediately for Rs.240,000, but the company
would have to pay shipping costs of Rs.5, 000.The risk-free market rate of interest is 10%.

Required:
Market changes indicate that the asset may be impaired and so the recoverable amount for the
asset must be calculated.

Q2: Depreciation of impaired asset

On 1 January Year 1 Entity Q purchased for Rs.240,000 a machine with an estimated useful life of
20 years and an estimated zero residual value.

Depreciation is on a straight-line basis.

On 1 January Year 4 an impairment review showed the machine’s recoverable amount to be

Rs.100,000 and its remaining useful life to be 10 years.
Required:
a) The carrying amount of the machine on 31 December Year 2 and year 3 (immediately before the
impairment).

b) The impairment loss recognized in the year to 31 December Year 4.

c) The depreciation charge in the year to 31 December Year 4.

Q3: Impairment loss of a revalued asset

A company has a machine in its statement of financial position at a carrying amount of Rs.300,000 including
a previously recognized surplus of Rs.20,000.

The machine has been tested for impairment and found to have recoverable amount of Rs.275,358.

Required:

Record double entry for the impairment loss.

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