Lily Constructing Sdn Bhd may be a producing company that has been operational for the last 15 years. The company's oldest producing equipment remains in a good condition. The equipment was bought 10 years ago at a cash price of RM130,000. The useful life of the equipment is 20 years, whereas its residual value is set at 10% of its original cost.  Lily uses the straight-line method to depreciate all producing equipment. For the past 3 years, Lily has been experiencing a downswing within the trade cycle.  Hence, Lily has decided to evaluate the producing equipment for impairment. Lily estimates that the equipment has a remaining useful life of I5 years. In addition, it is also estimated that the net cash inflow from the equipment will be RM50,000 per year. Meanwhile, the fair value of the equipment is estimated at RM630,000.

a) Determine whether an impairment loss should be recognized in the situation

b) What is the journal entry for the above transaction if an impairment loss is recognized

c) Assume that now the fair value of the equipment is determined at RM1,240,000 then explain how your answer at (a) now would differ from the earlier answer

Answer rating: 100% (QA)

aFrom the above information the carrying value of the equipment can be calculated as the Cost of the ... View the full answer