On 1 July 2015, Resolution Ltd purchased an item of machinery for $160,000. It was

estimated that the item of machinery had a useful life of 8 years and a zero residual

value. Resolution Ltd uses the cost model to measure items of property, plant and

equipment and the straight-line method of depreciation. Resolution Ltd has a 30

June reporting date.

In relation to the item of machinery, indicators of impairment have been identified for

the reporting period ended 30 June 2017 while indicators for a reversal of

impairment have been identified for the reporting period ended 30 June 2018. The

fair value less costs of disposal and the value in use of the item of machinery on

these dates were:

Date Fair value less Value in use

costs of disposal

30 June 2017 $100,000 $108,000

30 June 2018 95,000 90,000

Required

(a) Explain the terms 'fair value less costs of disposal' and 'value in use'.

(b) What is one of the indicators that an asset might be impaired?

(c) Prepare the journal entry to account for any impairment loss in relation to the

item of machinery on 30 June 2017.

(d) Explain and calculate the ceiling beyond which the carrying amount of the

item of machinery cannot be increased on 30 June 2018 when reversing the

impairment loss. What is the purpose of the ceiling?

(e) Prepare the journal entry on 30 June 2018 to account for any reversal of the

impairment loss.

(f) Explain how Resolution Ltd would account for an impairment loss and the

reversal of an impairment loss if the revaluation model was used to measure

the asset.