Bobs Ltd owns a plant that originally cost P700 000 on 01/01/2010 and has a carrying amount of P350 000 on 31/12/2015. The plant is depreciated on a straight-line basis to a zero residual value over a 10-year useful life. As per IAS 36 Bobs Ltd performed an indicator review on 31/12/2015 to asset whether this asset might be impaired. Initial information collected for the purpose of the review included: · The accountant budgeted that net cash inflows will be slightly reduced over the next 3 years of usage, due to a drop in the market demand for the plant’s output. The accountant’s opinion is that there will be no market for the plant’s output after 31/12/2018. The estimated fair value of the plant is P250,000. 

Required: Outline the reasons why you think this asset should be impaired.

Answer rating: 100% (QA)

Asset impairment is often confused with asset depreciation which is a predictable and expected occurrence as an asset ages or incurs wear and tear over the course of normal use In contrast asset impai... View the full answer