Reference no: EM132635485

Brighton Limited acquired a manufacturing plant at a cost of R1 700 000 on 1 January 2017. The plant was used in the production of tiles. On 1 January 2017, management estimated that the plant would have a residual value of R150 000 and an estimated useful life of 10 years. On 31 December 2019, a major customer, who buys the product produced by the machine, went bankrupt. In addition, owing to an inherent fault, the plant‘s output has declined by 25%. The fault cannot be rectified as the original supplier of the machine no longer manufactures or maintains stocks of spare parts for the machine. Management estimates that the net cash inflows to be generated from the machine in the next three years would be: -- 31 December 2020 180 000 31 December 2021 130 000 31 December 2022 100 000 Management is still confident that the plant can be sold for its original estimated residual value at the end of the plant‘s useful life. Brighton's cost of capital is 10%.

Question 1) What does impairement of assets mean?

Question 2) Calculate the impairment loss and the carrying amount of the machine as at 31 December 2019 and show related journal entries. Round off the discount factor to 4 decimal places.