Tan Ltd purchases equipment on 1 January 20X5, for $300,000, with a useful life of three years and no residual value and measures the equipment subsequently using cost model. At 31 December 20X5. Tan determines that the equipment has an impairment loss of $20,000. At 31 December 20X6, Tan determines that the recoverable amount of the equipment is $96,000.

Question

(1) Illustrate the accounting of the equipment by Tan by preparing all journal entries for the financial years ending 31 December 20X5 and 31 December 20X6.

(2) Disregarding the recoverable amount of the equipment at 31 December 20X6, what is the amount of limitation of the reversal of impairment loss on that day?