ACCA Applied Skills · Financial Reporting · Impairment of assets
At the reporting date, an item of equipment has a carrying amount of $400,000. Its fair value less costs of disposal is $330,000 and its value in use is $350,000. What impairment loss should be recognised?
The impairment loss is $50,000. Recoverable amount is the higher of fair value less costs of disposal ($330,000) and value in use ($350,000), which is $350,000, and the carrying amount of $400,000 exceeds this by $50,000.
- A$50,000Correct
- B$70,000
- C$20,000
- D$0
Explanation
Recoverable amount is the higher of fair value less costs of disposal ($330,000) and value in use ($350,000), so $350,000. Impairment loss = 400,000 - 350,000 = $50,000. Using the lower figure gives $70,000, which is wrong because recoverable amount is the higher.
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