QUESTION 4

Bobs Ltd owns a plant that originally cost P700 000 on 01/01/2010 and has a carrying amount of P350 000 at 31/12/2015. The plant is depreciated on a straight line basis to a zero residual value over a 10 year useful life. As per IAS 36 Bobs Ltd performed an indicator review at 31/12/2015 to asset whether this asset might be impaired. Initial information collected for the purpose of the review included: The accountant budgeted that net cash inflows will be slightly reduced over the next 3 years of usage, due to a drop in the market demand for the plants output. The accountants opinion is that there will be no market for the plants output after 31/12/2018.

The estimated fair value of the plant is P250,000.

Required:

Outline the reasons why you think this asset should be impaired. (8 marks)