Read the case study below and answer the questions based on the case study. HXM Limited...

 

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Read the case study below and answer the questions based on the case study. HXM Limited (HXM) is a JSE listed entity that operates in the construction industry and has a financial year end of 30 June. The company has numerous items of property, plant and equipment (PPE). Due to lockdown restrictions the entity has faced declining profitability and liquidity for the financial year ended 30 June 2021. These circumstances have bought into question the recoverability of the carrying amounts of their assets. The information below pertains to an item of equipment held by HXM: Date of purchase and date bought into use 1 July 2018. Purchase price R5million. Useful life 5 years and residual value is RO. The asset is measured using the cost model as defined per IAS 16. ● 4.1 ● On 28 June 2021, an independent valuer was contracted to ascertain the fair value of the asset as it showed indicators of impairment. Below is the detail from the valuer's report: . ● Fair Value R1.2million. Costs to sell the asset if HXM had to do so today R200 000. Value in use R1.4million. Useful life and residual value remain unchanged from original estimate. In your own words discuss the concept of depreciation of an asset as well as the concept of the impairment of an asset. 4.2 Prepare the journal entries to account for the equipment for the year ended 30 June 2021. Narrations are required. Read the case study below and answer the questions based on the case study. HXM Limited (HXM) is a JSE listed entity that operates in the construction industry and has a financial year end of 30 June. The company has numerous items of property, plant and equipment (PPE). Due to lockdown restrictions the entity has faced declining profitability and liquidity for the financial year ended 30 June 2021. These circumstances have bought into question the recoverability of the carrying amounts of their assets. The information below pertains to an item of equipment held by HXM: Date of purchase and date bought into use 1 July 2018. Purchase price R5million. Useful life 5 years and residual value is RO. The asset is measured using the cost model as defined per IAS 16. ● 4.1 ● On 28 June 2021, an independent valuer was contracted to ascertain the fair value of the asset as it showed indicators of impairment. Below is the detail from the valuer's report: . ● Fair Value R1.2million. Costs to sell the asset if HXM had to do so today R200 000. Value in use R1.4million. Useful life and residual value remain unchanged from original estimate. In your own words discuss the concept of depreciation of an asset as well as the concept of the impairment of an asset. 4.2 Prepare the journal entries to account for the equipment for the year ended 30 June 2021. Narrations are required.

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41 Depreciation is the systematic method of allocation of cost of asset over its useful life It repr... View the full answer