Reference no: EM132821318

Redmond Ltd acquired an item of machinery on 1 July 2015 for $450,000. The machinery has a useful life of 15 years and a zero residual value. The machinery is depreciated using the straight-line method and is measured using the cost model.

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 machinery on these dates were:

Date                           Fair value less costs of disposal               Value in use
30 June 2017                    $377,000                                    $370,000

30 June 2018                    $360,000                                      $363,000

Required

Problem (a) Provide any necessary journal entries related to the impairment of the item of machinery on 30 June 2017 and 30 June 2018.

Problem (b) Define 'fair value less costs of disposal' and 'value in use'.

Problem (c) Explain and calculate the ceiling beyond which the carrying amount of the machine cannot be increased on 30 June 2018 when reversing the impairment loss.

Problem (d) What would Redmond Ltd do if the recoverable amount of the machine could not be determined because the machine worked interdependently with other assets in Redmond Ltd's factory to manufacture products that generated cash flows?