MFRS136 IMPAIRMENT Question 1 Fareeza Sdn Bhd is involved in traditional batik printing business in Kuala Terengganu. On 1 January 2009, the company bought an equipment which was used in printing the batik textile for RM200,000. The equipment has an estimated useful life of 5 years and a salvage value of RM5,000. In 2010, due to the introduction of computer designed batik and aggressive promotion by the competitors, the demand for traditional batik material dropped significantly and forced Fareeza Sdn Bhd to reduce its production by 50%. The company decided to provide for impairment loss for the year ended 31 December 2010. It was determined that if the equipment was to be sold at 31 December 2010, the sales proceed would be RM90,000 The projected cash inflows for the equipment for the year 2011 to 2013 are as follows: 2011 2012 2013 RM50,000 RM50,150 RM35.105 In order to survive in the business, Fareeza Sdn Bhd employed two new designers to create modern cultured batik design for her company. The new design plus innovative marketing strategies resulted in the demand for the modern cultured batik material to increase Based on the projections of future cash flows, the company estimates that the fair value less cost to sell off the equipment is expected to be increased by RM80,000 as compared to last year's estimation, whilst its value in use is expected to be RM150,000 The company's incremental borrowing rate is 12%. Present value table for single sum where i= interest and n = years is as follows: n 1 0.893 0.797 0.712 4 0.636 5 0.567 Required: a. Calculate the impairment loss (if any) for the equipment as at 31 December 2010 b. Calculate the impairment loss or reversal of impairment loss for the year ended 31 December 2011 c. Show the extract of Statement of Financial Position as at 31 December 2009, 2010 and 2011. d. Explain two (2) situations which may lead to the impairment of assets