Question

What amount of gain on reversal of impairment loss should be recognized in 2020? ...


What amount of gain on reversal of impairment loss should be recognized in 2020? 

Transcribed: An entity presented the following information relating to a machine on December 31, 2019: Cost Accumulated depreciation Value in use Fair value less cost of disposal 9,000,000 1,000,000 7,000,000 4,400,000 The entity tested the machine for impairment on December 31, 2019. The machine has a remaining life of 4 years on such date. On December 31, 2020, it was determined that the recoverable amount of the machine was P5,800,000.

Answer

Impairment of assets means when actual recoverable value of the asset is less than the carrying value of the asset. 

Carrying value of the machine = Cost - Accumulated Depreciation

= 9,000,000 - 1,000,000 = 8,000,000

Recoverable amount = Higher of value in use or Fair value less costs of disposal

= Higher of 7,000,000 or 4,400,000

= 7,000,000

Impairment loss as on Dec 31,2019 = Carrying value - Recoverable amount

= 8,000,000 - 7,000,000 = 1,000,000

Depreciation for 2020 = Carrying value as on Dec 31,2019/ Useful life

= 7,000,000/4 = 1,750,000

Carrying value as on Dec 31,2020 = Carrying value as on Dec 31,2019 - Depreciation for 2020

= 7,000,000 - 1,750,000 = 5,250,000

Recoverable amount as on Dec 31,2020 = 5,800,000

Gain on reversal of impairment loss = Recoverable amount - Carrying value

= 5,800,000 - 5,250,000 = 550,000

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