Page 57 - FR Integrated Workbook 2018-19

Impairment of assets

Example 2

Recoverable amount

An entity owns a car that was involved in an accident at the year end. It is
barely useable, so the value in use is estimated at $1,000. However, the car is
a classic and there is a demand for the parts. This results in a fair value less
costs to sell of $3,000. The opening carrying amount was $8,000 and the car
was estimated to have a life of eight years from the start of the year.

Identify the recoverable amount of the car and any impairment required.

Recoverable amount is higher of:

 fair value less costs to sell $3,000

 value in use $1,000

Therefore $3,000.

This indicates an impairment as follows:
$

Carrying amount b/f 8,000
Depreciation ($8,000 × 1/8) (1,000)

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Carrying amount at date of accident 7,000

Impairment (balancing figure) (4,000)
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Recoverable amount 3,000
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Illustrations and further practice

For homework try TYU question 2 from Chapter 4 of the Study Text.

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