Question
Sim Lian Ltd acquired a forklift machine for $125,000 on 1 July 2022. It depreciated the asset at 10% p.a. on a straight-line basis. On
Sim Lian Ltd acquired a forklift machine for $125,000 on 1 July 2022. It depreciated the asset at 10% p.a. on a straight-line basis.
On 30 June 2024, Sim Lian Ltd conducted an impairment test on the asset. It determined that the asset could be sold to other entities for $70,000 with costs of disposal of $5,000. Management expect to use the forklift machine for the next four years with expected cash flows from use of the forklift machine being:
Cash Flows of Sim Lian Ltd.
2024 $40,000
2025 30,000
2026 25,000
2027 20,000
The rate of return expected by the market on this forklift machine is 8% p.a.
Required:
a) Assess whether the forklift machine is impaired.
b) Provide the appropriate journal entry to recognise any impairment loss.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started