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Question - Gift Ltd has been involved in several manufacturing ventures as a result he owns various items of machinery. At the end of the current year two items were damaged but are still in working order. The machines useful life and pattern of use were not influenced by the damages. The carrying amounts of the two items on 31 December 2018 were as follows: Rand Machine 1 1 000 000 Machine 2 760 000
Machine 1 can at this stage be disposed of to a knowledgeable, willing buyer for R980 000. In order to sell the machine, it has to be serviced and tuned at a cost of R20 000. Direct selling expenses of R10 000 would also be incurred. Management determined the value in use of the machine to be R976 000 using an appropriate discount rate of 10% before tax.
Machine 2 can at this stage be disposed of to a knowledgeable, willing buyer for R760 000. Direct selling expense of R20 000 would also be incurred. Management determined the value in use of the machine to be R780 000 using an appropriate discount rate of 10% before tax.
REQUIRED -
1. Determine the following for each machine:
a) The recoverable amount.
b) The impairment.
2. Disclose the note of profit before tax in the financial statements of Gift Ltd for the year ended 31 December 2018?
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