4 This question has 3 separate elements. They are not related to each other and should be answered independently. 4.1) IAS 36 Impairment of Assets states that impairment of an asset occurs when the 'carrying value exceeds recoverable amount'. Explain what is meant by this phrase. In addition, IAS 36 also states that a review of all assets should be made at each balance sheet date to look for any indication that an asset may be impaired. Explain the requirements of IAS 36 with respect to identifying and accounting for impairments. (10 Marks) (maximum 300 words) 4.2) Super Remedy is a public listed pharmaceutical company reporting under IFRS. During 20X7 the company spent 550,000 on research and development. This comprised two projects: Project 1: Cost in the year 300,000 - acquisition of equipment for use on current project only and salaries of research staff designing new tablets for cancer. Project 2: Cost in the year 200,000 - development of vaccination which is expected to be a very profitable product range. The final development phase has just finished and production is expected from January 20X8 with the product expected to generate profits from January 20X9. In addition, the company spent 50,000 on commissions to staff marketing the new vaccination. Required: Explain how the directors should treat the above items in the financial statements for the year ended 31 December 20X7, in accordance with IAS 38 on Intangible Assets. 4.3) Orbit Plc has two items of machinery that it wishes to sell: (10 Marks) Machine 1: This machine is only 1 years old but technology has been outdated and it is rarely used anymore. The machine is available for sale immediately and management are hoping that they will achieve a quick sale. The net book value is 12,000 but a similar machine could now be purchased for about 5,000. Management is keen to achieve a sales price closer to the net book value and are marketing it in this way. It is estimated that expenses of 1,000 and tax of 300 will be payable on sale. Machine 2: This machine makes customized product but that line is being replaced and this machine is now being advertised and is up for immediate sale at 20,000. The machine was bought for 30,000 three years ago when it had an expected life of 10 years. It has been depreciated on a straight line basis for the past three years. The market value of the machine is 22,500 and expenses of 1,000 will be payable on sale. Required: Applying IAS 16 or IFRS 5 as appropriate, demonstrate how Orbit Plc should account for Machine 1 and Machine 2, providing Income Statement and Statement of Financial Position extracts. You should provide a brief explanation to justify the accounting approach you have taken for each asset. (10 Marks)