Reference no: EM132564240

Question - Mybank Ltd acquired some machinery at a cost of $2 000 000. As at 30 June 2022 the machinery had accumulated depreciation of $400 000 and an expected remaining useful life of four years.

On 30 June 2022 it was determined that the machinery could be sold at a price of $1 200 000 and that the costs associated with making the sale would be $50 000. Alternatively, the machinery is expected to be useful for another four years and it is expected that the net cash flows to be generated from the machine would be $390 000 over each of the next four years.

It is assessed that at 30 June 2022 the market would require a rate of return of 6 per cent on this type of machinery.

REQUIRED -

a) Explain and show calculations of why an impairment loss needs to be recognised in relation to the machinery.

Accounting Standard AASB 136, Impairment of Assets, requires that, if the carrying amount of an asset is greater than its 'recoverable amount', then the carrying amount must be reduced ('written down') to that recoverable amount. In this case, the impairment loss in the machinery must be recognised as it can no longer deliver the benefits it was originally expected to provide.

b) Provide the appropriate journal entry at 30 June 2022 to account for the impairment.

c) Provide the journal entry to account for depreciation in 2023.