Saga Petrochem Bhd purchased a machine on 1 January 2011 for RM980,000. The machine is used to process crude oil into lubricants for heavy industries. The machine has a useful life of 8 years and a scrap value of RM200,000. It is depreciated at 18% per annum using the reducing balance method. For the year ended 31 December 2013, the global price of lubricants dropped significantly. This is followed by the reduction in the demand of the product. Following these unfavorable situations, Saga Petrochem Bhd decided to provide for impairment loss on the machine for the year ended 31 December 2013. The management of Saga Petrochem Bhd estimated the fair value less cost to sell of the machine on 31 December 2013 to be RM535,000 while the projected cash inflows from the machine are as follows: RM Year ended 31 December 2014 2015 2016 2017 2018 111,800 106,080 103,880 102,120 105,200 For the year ended 31 December 2015, after some innovation, the lubricants' demand recaptured the market. They estimated that the value-in-use will be RM410,000 while fair value less costs to sell is expected to be RM450,000. There are no changes in the scrap value and depreciation policy for the machine. Note: The company's incremental borrowing rate is 10%. Present value table for RM1 at 10% interest is given below: Year Present value 1 0.909 2 0.826 3 0.751 4 0.683 5 0.621 Required: a. b. List three (3) indications from external sources of information that indicate an asset might be impaired. (5 marks) Explain briefly the meaning of value-in-use. (5 marks) i. Identify the impairment loss (if any) for the machine as at 31 December 2013. (Show the relevant computations to the nearest RM1). (5 marks) C. ii. Calculate the carrying amount of the machine, net of impairment loss or reversal of impairment loss, for the year ended 31 December 2015. (Show the relevant computations to the nearest RM1). (10 marks) Saga Petrochem Bhd purchased a machine on 1 January 2011 for RM980,000. The machine is used to process crude oil into lubricants for heavy industries. The machine has a useful life of 8 years and a scrap value of RM200,000. It is depreciated at 18% per annum using the reducing balance method. For the year ended 31 December 2013, the global price of lubricants dropped significantly. This is followed by the reduction in the demand of the product. Following these unfavorable situations, Saga Petrochem Bhd decided to provide for impairment loss on the machine for the year ended 31 December 2013. The management of Saga Petrochem Bhd estimated the fair value less cost to sell of the machine on 31 December 2013 to be RM535,000 while the projected cash inflows from the machine are as follows: RM Year ended 31 December 2014 2015 2016 2017 2018 111,800 106,080 103,880 102,120 105,200 For the year ended 31 December 2015, after some innovation, the lubricants' demand recaptured the market. They estimated that the value-in-use will be RM410,000 while fair value less costs to sell is expected to be RM450,000. There are no changes in the scrap value and depreciation policy for the machine. Note: The company's incremental borrowing rate is 10%. Present value table for RM1 at 10% interest is given below: Year Present value 1 0.909 2 0.826 3 0.751 4 0.683 5 0.621 Required: a. b. List three (3) indications from external sources of information that indicate an asset might be impaired. (5 marks) Explain briefly the meaning of value-in-use. (5 marks) i. Identify the impairment loss (if any) for the machine as at 31 December 2013. (Show the relevant computations to the nearest RM1). (5 marks) C. ii. Calculate the carrying amount of the machine, net of impairment loss or reversal of impairment loss, for the year ended 31 December 2015. (Show the relevant computations to the nearest RM1). (10 marks)
