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Illustrations

The document outlines the impairment and reversal of impairment for machinery, detailing the carrying amount, fair value, and accumulated depreciation. It includes journal entries for recording impairment losses and depreciation adjustments over the years. The final figures show a gain on reversal of impairment and a comparison of carrying amounts with and without impairment.

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ArianeMaeT.Ricabo
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43 views2 pages

Illustrations

The document outlines the impairment and reversal of impairment for machinery, detailing the carrying amount, fair value, and accumulated depreciation. It includes journal entries for recording impairment losses and depreciation adjustments over the years. The final figures show a gain on reversal of impairment and a comparison of carrying amounts with and without impairment.

Uploaded by

ArianeMaeT.Ricabo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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At year-end, an entity has a machinery with the following cost and accumulated depreciation:

Machinery 5M
Accumulated Depreciation (2M)
Carrying amount 3M

Due to obsolence and physical damage, the machinery is found to be impaired


The entity has determined the following information with respect to machinery at year-end:

Fair value less cost of disposal 2,400,000


Value in use 2,200,000

JOURNAL ENTRIES
Impairment loss 600,000
Accumulated Depreciation 600,000

SOLUTION
CARRYING AMOUNT 3,000,000
RECOVERABLE AMOUNT 2,400,000
IMPAIRMENT LOSS 600,000

REVERSAL OF IMPAIRMENT LOSS


On December 31, 2019, the statement of financial position shows the following balances:

Machinery 8M
Accumulated Depreciation ( 10 year life, 2 yrs expired) 1.6M
CARRYING AMOUNT 6.4 M

On the same date, the recoverable amount of the machinery is determined to be the fair value less cost
of disposal of 5,200,000.

JOURNAL ENTRIES
Impairment loss 1 200 000
Accumulated Depreciation 1,200,000
(6 400 000 - 5 200 000)
On December 31, 2020, the recoverable amount of the machinery is determined to be 6 000 00
indicating a reversal in the impairment.

DECEMBER 31, 2020 (if impairment didn't happened)


Machinery 8M
Accumulated depreciation (8M/10x3) 2.4M
CA DEC. 31, 2019 ( no impairment) 5.6M

CARRYING AMOUNT WITH IMPAIRMENT ON DECEMBER 31,2020


Machinery 8M
Accumulated depreciation - December 31, 2019 2.8 M
(1600,000 + 1,200,000)
Adjustedd carrying amount- Dec. 31, 2019 5,200, 000
Deprecaition for 2020 (5.2 M / 8) 650 000
CARRYING AMOUNT- Dec. 31, 2020 4 550 000
with impairment

JOURNAL ENTRIES

Depreciation 650,000
Accumulated Depreciation 650 000

Accumulated Depreciation 1,050,000


Gain on reversal of impairment 1,050,000

carrying amount- no impairment 5 600 000


carrying amount- with impairment 4 550 000
Gain on revrsal of impairment 1 050 000

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