Page 456 - F1 Integrated Workbook STUDENT 2018

Chaptter 25

Chaapter 112

Exxampple 1

On 1 Januaryy 20X8 an eentity Mickkey purchaases a macchine for $220,000. It hhas
an eexpected uuseful life oof 10 yearss and nil reesidual valuue. The enntity uses the
straaight line mmethod of ddepreciatioon.
On 31 Decemmber 20X9 the entity d decides too sell the mmachine. Itss current
market value is $15,0000 and the eentity is connfident they 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 carryiing value == 8/10 × $220,000 = $16,000 (wee have hadd the machhine
for two years,, hence chaarged two years’ worrth of depreciation aggainst the
assset).
Fair value lesss costs to sell = $15,,000 – 5000 = $14,5000 The macchine qualiffies
as aan "asset hheld for sale" at 31 DDecember 220X9 so shhould be vaalued at thhe
lowwer of carryying value oor fair valuue less cossts to sell, i.e. $14,5000.
Thee carrying vvalue must be writtenn down froom $16,0000 to $14,5000. The
imppairment wwill be chargged againsst profit forr the year inn the stateement of prrofit
or looss.
Thee machine is no longeer depreciaated.

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