An asset which cost £200,000 on 1 January 2018 is being depreciated on the straight line basis over a five year period with an estimated residual value of £40,000. The company which owns the asset has conducted an impairment review at 31 December 2019 and estimates that the asset will generate the following cash flows over the remainder of its useful life:

The cash inflow for 2022 includes the estimated residual value of £40,000. The asset could be sold on 31 December 2019 for £110,000. Disposal costs would be £6,000.
(a) Determine the asset's value in use, assuming that all cash flows occur at the end of the year concerned and using a discount rate of 8%.
(b) Determine the asset's recoverable amount.
(c) Calculate the amount of the impairment loss that has occurred and explain how this should be accounted for.
(d) Calculate the amount of depreciation that should be charged in relation to the asset for each of the remaining years of its useful life.

Transcribed Image Text:

Year 2020 2021 2022 Inflows £000 45 35 60 Outflows £000 5 5555