Page 205 - F1 Integrated Workbook STUDENT 2018

IFRRS 5 Nonn-currentt assets held for sale andd disconttinued
operations

Exxampple 1

On 1 Januaryy 20X8 an eentity Mickkey purchaases a macchine for $220,000. It hhas
an expected uuseful life oof 10 yearss and nil reesidual value. The enntity uses the
straaight line mmethod of ddepreciatioon.

On 31 Decemmber 20X9 the entity decides too sell the mmachine. Itss current
market value is $15,0000 and the eentity is confident theey will find aa buyer veery
quicckly due thhe short suupply in thee market foor this type of machinnery. It will
cosst the entityy $500 to ddismantle tthe machinne.

At wwhat value should tthe machiine be included in MMickey's sstatement of
finaancial possition at 311 Decembber 20X9?

Sollution

Currrent carrying value == 8/10 × $220,000 = $$16,000 (we have hadd the machhine
for two years,, hence charged two years’ worth of depreciation aggainst the
assset).

Fair value lesss costs to sell = $15,,000 – 5000 = $14,5000 The macchine qualiffies
as aan "asset hheld for saale" at 31 DDecember 220X9 so shhould be vvalued at thhe
lowwer of carryying value oor fair valuue less cossts to sell, i.e. $14,50 00.

Thee carrying vvalue must be writtenn down froom $16,0000 to $14,5000. The
imppairment wwill be chargged againsst profit forr the year in the stateement of prrofit
or loss.

Thee machine is no longer depreciaated.

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