Reference no: EM132806304

Question - Fast Delivery Ltd in 2012 started its delivery business in Melbourne delivering medical supplies to South Melbourne region. On 1 July 2018, Fast Delivery Ltd acquired Freezer Utes for use in its delivery services business. Fast Delivery Ltd has provided you with the following information relating to its acquisition of the Utes:

Cost at acquisition date: 1 July 2018 $1,080,000

Estimated useful life: 10 years

Expected residual value: $180,000

Depreciation method: straight-line basis over its useful life Straight-line

Carrying amount: 30 June 2020 $900,000

At the end of the 2020 reporting period the annual review of all Utes found that this particular item of Utes had incurred significant damage because of harsh weather condition in South Melbourne. Fast Delivery Ltd used an external firm of Actuaries to provide the fair values of its Utes. The actuaries as a result of the damage, estimated the fair value less costs of disposal of the Utes at the end of the reporting period as follows:

Annual review end of the 2020, fair value less costs of disposal $540,000

Expected annual net cash flows next 8 years $94,500

Expected residual value Unchanged

The management of Fast Delivery Ltd and the actuaries uses a discount rate of 9 per cent for calculations of this kind.

REQUIRED - Determine whether Fast Delivery Ltd has incurred an impairment loss in relation to the asset. If so, determine the amount of the impairment loss, and provide the journal entry necessary to recognise any impairment in the Utes.