SECTION A.

1.Differentiate between Fair Value and Carrying amounts

2.What is impairment

3.The objective of IAS 36 Impairment of assets is to prescribe the procedures that an entity applies to ensure that its assets are not impaired

Required

Explain what is meant by an impairment review. And what are some of the indicators of impairment?

4.The following information relates to an item of plant.

Its carrying amount in the statement of thefinancial position is K3 million.

The company has received an offer of K2.7 million from a company in Japan interested in buying the plant.

The present value of the estimated cash flows from continued use of the plant is K2.6 million.

The estimated cost of shipping the plant to Japan is K50,000.

What is the amount of the impairment loss that should be recognised on the plant?

5.Tindo Ltd purchased a piece of land and carried in its books at K130,000. Two years ago a slump in land values led the Tindo Ltd to reduce the carrying value from K150,000. This was taken as an expense in profit or loss. There has been a upswing in land prices in the current year, however, and the land is now worth K200,000.

Required:

Account for the revaluation in the current year

SECTION B

1. What is depreciation

2. Mention and explain two types of depreciation.

3. What are the purposes of providing for depreciation?

4. In what circumstances is the reducing balance method more appropriate than the straight-line method? Give reasons for your answer.

5. A lorry bought for a business cost K170,000. It is expected to last for five years and then be sold for scrap for K20,000.

Required

Work out the depreciation to be charged each year under:

(a) The straight line method

(b) The reducing balance method (using a rate of 35%)