Cash 4 000 All assets are measured using the cost model. At 30 June 2022, the recoverable amount of th
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
At 30 June 2022, Boxes Ltd reported the following assets.
Land $100 000
Plant $500 000
Inventories 80 000
Cash 4 000
All assets are measured using the cost model.
At 30 June 2022, the recoverable amount of the entity, considered to be a single CGU, was $544 000.
For the period ending 30 June 2023, the depreciation charge on plant was $36 800. If the plant had not been impaired the charge would have been $50 000..
At 30 June 2023, the recoverable amount of the entity was calculated to be $26 000 greater than the carrying amount of the assets of the entity. As a result, Boxes Ltd recognised a reversal of the previous year’s impairment loss.
The
a.
Reversal of impairment is not allowed
b.
Accum. impairment losses – Land Dr 5 652
Accum. deprec. & impairment losses – Plant Dr 20 348
Income – reversal of impairment loss Cr 26 000
c.
Accum. impairment losses – Land Dr 8 000
Accum. deprec. & impairment losses – Plant Dr 18 000
Income – reversal of impairment loss Cr 26 000
d.
Accum. impairment losses – Land Dr 7 200
Accum. deprec. & impairment losses – Plant Dr 18 800
Income – reversal of impairment loss Cr 26 000
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