Super Sports has a yearend of 31st December and makes footballs. On July 1st 2016 the company purchased a machine with a useful life of 10 years for Rs 800,000. The company uses straight line depreciation and time is apportioned to years of acquisition and disposal. The machine was revalued to Rs 810,000 on 1st July 2017. There was no change in useful life at that date.

There was major damage to the factory due to rain on 1st October 2018 the machine was damaged. Information regarding the machinery as of 1st October 2018 is as follows
i. Carrying amount of the machine is Rs 600,750
ii. Equivalent new machine would cost Rs 900,000
iii. The machine could be sold in its current condition for a Rs 450,000. It would cost Rs 20,000 to dismantle it.
iv. The machine in its current state could be used for 3 more years which gives it value in use of Rs 380,685
Required
a) Calculate depreciation for the machinery for the year 2017.
b) Identify one internal and one external impairment indicator which may be relevant to this machine.
c) Calculate the total impairment loss (if any) on the machine as of 1st October 2018.
d) On 1st July 2019, it is discovered that the damage to the machine is worse than originally thought. The machine is now considered to be worthless and the recoverable amount of the factory as a cash-generating unit is estimated to be Rs9,500,000.
As at 1st July 2019 the cash generating unit comprised of the following assets
Building 5,000
Plant and equipment (including the
damaged machine at a carrying value of Rs 350,000) 3,350
Receivable and cash (at recoverable amount) 2,500
Goodwill 850
Total 11,700

In accordance with IAS 36 Impairment of Assets, what will be the carrying amount of Super Sports’s plant and equipment when the impairment loss has been allocated to the cash-generating unit?

Answer rating: 100% (QA)

Under the revaluation model Any increase in the value of assets is credited to OCI and accumulated i... View the full answer