Part a

An equipment (cost model is used) has a carrying amount of $100,000, it is depreciated on straight line basis, with a remaining useful life of three years and residual value of $15,000. It is expected to generate cash inflow of $20,000 per year for the next three years and at the end of third year, the asset can be sold for $10,000, cost of disposal can be ignored. Currently, the asset could be sold for $60,000 and cost of disposal would be $3,000.

Required

1. Assume the discount rate is 8% and all cash flows occur at the end of year (i.e. ordinary annuity), to calculate the value in use of the equipment. (5 marks)
2. Calculate the amount of impairment losses of the equipment (3 marks)
3. Calculate the amount of depreciation that should be charged in respect of the equipment for each of next three years, assuming straight line method will continue to be used. (3 marks)