QUESTION 2 (25 MARKS)

Tinta Bnd had purchased a machine for RM800,000 on 1 January 2019. The machine generated cash flows independent from other assets within the company. The estimated useful life of the asset was 5 years with no salvage value at the end of its useful life. As at 31 December 2021, management of the company is in the opinion that the machine was impaired due to economic downturn. The company determined the net realizable value of the assets is RM250,000 and the value in use is RM300,000.

At 31 December 2022, the economic had recovered earlier than what the economist expected and it was determined that the fair value less costs to sell of the machine is RM250,000. The budgeted net cash flows to be generated by the machine during the year ended 31 December 2022 is RM280,000.

No changes in the estimated useful life of the machine and the company decided to measure the machineries using cost model.

Required:

a) Explain the impairment loss of asset according to MFRS 136 Impairment of Assets.

(2 marks)

(CLO1:PLO9:C4)

b) Compute the impairment loss and reversal of impairment loss (if any) for the machine for the year ended 2021 and 2022

(9 marks)

(CLO1:PLO9:C4)

c) Prepare related journal entries to record transactions the years ended 31 December 2021 and 2022.

(8 marks)

(CLO1:PLO9:C4)

d) Prepare the extracts of Statement of Profit or Loss and Statement of Financial Position for the years 2021 and 2022.

(6 marks)

(CLO1:PLO9:C4)