Reference no: EM133185003

Question - On 1 July 2019, Perpetual Ltd acquired an asset for $1,000,000, which it is depreciating using the straight-line method over 20 years (hence, $50,000 depreciation charged each year). The director has realised a further $200,000 was written off as impairment loss for the year ending 30 June 2021 in addition to $50,000 depreciation for the year in that year. (Recoverable amount of the asset at 30 June 2021 due to COVID19 was estimated to be $700,000).

The directors are very concerned about writing off asset values like that and asked the following (1) what is impairment loss compare to depreciation expense? (2) what is recoverable amount? (3) whether the asset carrying amount can be increased in the future.

Therefore, the directors are also wondering, whether impairment loss can be reversed. They were hoping by 30 June 2022, a favourable reassessment of the recoverable amount occurs as the world economy would be recovered. The directors are asking you to (4) explain the reversal process, if recoverable amount of the asset is estimated to be $880,000 on 30 June 2022. Explanation must include the carrying amount of asset, depreciation expense for the year ending 30 June 2022, and journal entry for the reversal.

Provide advice to the managing director, with relevant references to the Australian Accounting standards in your answer.