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1.
July 2009, D Ltd. purchased a machine, which is used in a production process in the factory. On 30 June 2010, there was an indication that the machine could be impaired due to a new competitor entering in the market, so D Ltd. calculated the recoverable amounts of the machine. Information concerning the machine is summarised in the table below.
|
Machine |
Cost 1/07/09 |
Value in use 30/6/10 |
Net selling price 30/6/10 |
|
Machine |
$ 25 000 |
$ 13 000 |
$ 12 000 |
Assume that D Ltd. uses straight line depreciation over a 5 year period and had nil residual values at the end of the useful life of the machine.
REQUIRED
Prepare the journal entries to record any
asset impairment for the Machine at 30th June 2010.
2.
HH Ltd, having bought the Van from AA Ltd on July 31, 2011 decided to depreciate the asset using diminishing value method at 30% per annum. In October 2011 a news report suggested that this type of Vans were involved in a number of fatal accidents due to a manufacturing defect in the brake-fluid transmission system. Despite the prompt assurance by the manufacturer to recall and repair affected vehicles, HH Ltd reckoned that the value could be permanently impaired due to the negative publicity. As of October 30, 2011 the re-sale value of the vehicle had been estimated to be $ 15,000.
REQUIRED:
(a) Prepare journal entries to record the depreciation charge for the 3 months ending October 30, 2011. (Show all workings)
(b) Prepare journal entries to record any asset impairment as at that date. (Show all workings)
