Reference no: EM132549885

On 1 July 2015, Ultimo Ltd purchased an item of machinery for $100,000. On this date it was estimated that the item of machinery had a useful life of ten years and zero residual value. Ultimo Ltd uses the cost model to measure items of property, plant and equipment and the straight-line method of depreciation. Ultimo Ltd has a 30 June reporting date.

In relation to the item of machinery, Ultimo Ltd has identified indicators of impairment for the reporting periods ending 30 June 2017 and 30 June 2018 and indicators for a reversal of impairment for the reporting period ending 30 June 2019. The fair value less costs of disposal and the value in use of the item of machinery on these dates were as follows:

Date                 Fair value less costs of disposal              Value in use

30 June 2017                    $72,000                               $68,000

30 June 2018                      56,000                                52,000

30 June 2019                      60,000                                 65,000

Required

Question (a) Prepare the journal entries to account for any impairment losses in relation to the item of machinery on 30 June 2017 and/or 30 June 2018.

Question (b) Explain and calculate the ceiling beyond which the carrying amount of the item of machinery cannot be increased on 30 June 2019 when reversing any previously recognised impairment losses. What is the purpose of the ceiling?

Question (c) Prepare the journal entry on 30 June 2019 to account for the reversal of any previously recognised impairment losses.

Question (d) Assume that Ultimo Ltd uses the revaluation model to measure items of property, plant and equipment. Explain how Ultimo Ltd would account for the item of machinery on 30 June 2017, 30 June 2018, and 30 June 2019.