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Chapter 4

Example 2 cont.

Solution

The machine is initially depreciated at a rate of $3,000 ($24,000/8) per
annum, leaving a carrying amount at 31 December 20X4 of $18,000 (see
below). Following the impairment the carrying amount is reduced to $13,500
with a remaining useful life of six years.

The machine is then depreciated at a rate of $2,250 ($13,500/6) per annum,
leaving a carrying amount at 31 December 20X6 of $9,000 (see below).

$
Cost at 1 January 20X3 24,000
2
Depreciation to 31 December 20X4 ($24,000 × / 8) (6,000)
––––––

Carrying amount at 31 December 20X4 18,000
Impairment per the question (4,500)
––––––
Recoverable amount 13,500
2
Depreciation to 31 December 20X6 ($13,500 × / 6) (4,500)
––––––
Carrying amount at 31 December 20X6 9,000
––––––

Following the impairment reversal at 31 December 20X6 the carrying amount
will be increased, but the increase is restricted to the value of the depreciated
original cost of the asset, calculated as $12,000 (see below). The increase in
value of $3,000 ($12,000 – $9,000) is credited to the statement of profit or
loss.

$
Cost at 1 January 20X3 24,000
4
Depreciation to 31 December 20X6 ($24,000 × / 8) (12,000)
––––––

Carrying amount at 31 December 20X6 12,000
––––––

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