Shape Limited purchased a machine several years ago.

On the 31^st December 2017

• The machine had a Net Book Value of 140,000.
• A revaluation reserve of 10,000 existed in respect of the machine.
• Residual value of the asset is Nil.
• Useful life of the asset from 1 January 2018 is 5 years

A new competitor has entered the market place and has been very disruptive in the industry which has prompted the company to carry out an impairment review at the 2017 year end.

Estimates of the cash flows expected to be generated over the remaining useful life of the machine are set out below:

Year Inflows Outflows

000 000

2018 45 15

2019 40 14

2020 85 28

The asset could be sold at fair value on December 31, 2017 for 135,000 and associated disposal costs are estimated to be 10,000.

Required:

For the purposes of financial reporting in accordance with International Accounting Standards 36 Impairment of Assets:

1. Explain what is meant by an impairment review. Your answer should include reference to assets that may form a cash generating unit.
2. Identify and describe those factors included in IAS 36 which indicate that an asset might be impaired.

3. Determine the assets value in use, assuming that all cash flows occur at the end of the year concerned and using a discount rate of 6%;

Discount factors for discount rate of 6%

Period 1 0.943

Period 2 0.890

Period 3 0.840

Period 4 0.792

4. Determine the assets recoverable amount;

5. Quantify the amount of the impairment loss;

6. Explain in detail how the impairment loss should be accounted for in the companys financial statements in respect of fiscal 2017;

g. Calculate the amount of the depreciation that should be charged in relation to the asset for each of the remaining years of its useful life.