Reference no: EM132934904
Question - On 1 July 2016, PADOVA Ltd acquired and installed an item of equipment for use in its mining business in Kimberley. PADOVA Ltd has provided you with the following information relating to its acquisition of the equipment:
Cost at acquisition date: 1 July 2016 $1,500,000
Estimated useful life: 10 years
Expected residual value: $300,000
Depreciation method: straight-line basis over its useful life Straight-line
As at 30 June 2019, the annual review of all equipment found that this particular item of equipment had incurred significant damage because of harsh tropical monsoon weather condition in Kimberley. PADOVA Ltd used an external firm of Actuaries to provide the fair values of its equipment's. The actuaries as a result of the damage, estimated the fair value less costs of disposal of the equipment at the end of the reporting period as follows:
Annual review as at 30 June 2019, Fair value less cost of sales/disposal $1,110,000
Expected annual net cash flows for next 7 years $170,000
Expected residual value Unchanged
The management of PADOVA Ltd and the actuaries uses a discount rate of 7 per cent for calculations of this kind.
REQUIRED -
1. Determine the carrying amount of the equipment as at 30 June 2019.
2. Determine the recoverable amount as at 30 June 2019 and how is it calculated?
3. Determine whether PADOVA Ltd has incurred an impairment loss in relation to the equipment. If so, determine the amount of the impairment loss, and provide the journal entry necessary to recognise any impairment for the equipment. Please show your calculations.
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