Question

Recording Impairment Loss on Asset Held for Sale Three cases are provided below concerning a plant asset currently held for sale. Accumulated Case Original Cost Depreciation Fair Value Selling Costs $192,000 $100,000 $90,000 $3,000 90,000 2,000 60,000 2,000 560,000 300,000 280,000 14,000 3 a. Which cases(s), if any, require an impairment loss to be recognized, and for what amount? Note: If the asset is not impaired, enter a zero (or leave blank) for the loss. Note: Do not add any negative signs with your answers. Impairment Loss Case 1 $ Case 2 $ Case 3 $ b. Record the entry for the impairment loss on the case(s) identified in part a (if any). Account Name Dr. Cr.

Answer 1

Required Answers are as follows

Case Name	Amount of impairment Loss ($)
Case 1	5,000
Case 2	3,000
Case 3	0

Journal Entry of Impairment loss

Case Name	Account Name	Debit ($)	Credit ($)
Case 1	Impairment Loss A/C	5,000
	To Plant A/C		5,000
	(Being impairment loss on plan accounted for)
	Profit or Loss A/C	5,000
	To Impairment Loss A/C		5,000
	(Being Impairment Loss transferred to Profit or loss account)
Case 2	Impairment Loss A/C	3,000
	To Plant A/C		3,000
	(Being Impairment loss on plant accounted for)
	Profit or Loss A/C	3,000
	To Impairment Loss A/C		3,000
	(Being Impairment Loss transferred to Profit or loss account)

Working Notes

Impairment loss = Carrying amount of plan - Recoverable Amount

Recoverable amount of an assets is higher of

1. Fair value less cost of disposal
2. Value in use

Calculation of carrying amount of plant

Carrying amount of plant = Original cost - Accumulated Depreciation

Carrying amount of plant in case 1 = 192,000-100,000= 92,000

Carrying amount of plant in case 2 = 90,000 - 2,000 = 88,000

Carrying amount of plant in case 3 = 560,000 - 300,000 = 260,000

Calculation of Net Fair Value

Net fair value = Fair value less cost of disposal

Net fair value in case 1 = 90,000- 3,000 = 87,000

Net fair value in case 2 = 60,000 - 2,000 = 58,000

Net fair value in case 3 = 280,000 - 14,000= 266,000

Therefore Recoverable amount is in case 1 = 87,000

Therefore Recoverable amount is in case 2 = 58,000

Therefore Recoverable amount is in case 3 = 266,000

Impairment Loss for case 1 = 92,000 - 87,000= 5,000

Impairment Loss for case 2 = 88,000 - 58,000 = 3,000

Impairment Loss for case 3 = 260,000- 266,000= (6,000) i.e Nil