ACT3114: On 1 January 20X1, Redial Sdn Bhd purchased a machine for RM1,800 Redial will depreciate the machine on a straight-line basis over its useful life of 15 years: Financial Accounting and reporting 2 Assignment, UPM, Malaysia

1. On 1 January 20X1, Redial Sdn Bhd purchased a machine for RM1,800 (Redial will depreciate the machine on a straight-line basis over its useful life of 15 years). In 20X1, Redial recognized an impairment loss of RM500 on this machine, having identified indicators showing a reduction in expected demand for the machine output due to the introduction of a superior product released by a competitor. Redial applies the cost model in accordance with MFRS 116 and the impairment loss was recognized in profit or loss.

In 20X3, Redial determines that the competitor product is experiencing technical issues and that its effect on demand for Redial’s output is less than expected. Sales have exceeded forecast and management estimates that production will increase by 25%. On 31 December 20X3, Redial estimates the recoverable amount of the machine in accordance with MFRS 116. The recoverable amount of the machine is estimated to be RM1,300.

Determine the carrying amount of the machine after the impairment and reversal of impairment.

2. On 1 January 2011 Putra Enterprise acquired an oil delivery truck at a cost of RM27,000. Management estimated the useful life of the truck at nine years with zero residual value. Putra determined that straight-line depreciation is appropriate.

In 2012, because of a sharp downturn in demand for fuel oil, Putra dramatically decreased its use of this truck. Consequently, on 31 December 2012, management re-estimates the truck’s remaining useful life at 5 years, during which the value in use of the truck is expected to be RM17,080. Also, at 31 December 2012, the market price for the truck is RM15,400. If the truck was sold, license and title fees of RM400 would be paid.

By 31 December 2014, the market for fuel oil has recovered and there is improved demand for the services provided by oil delivery trucks. Management estimates that the truck’s remaining useful life is 4 years, through which the value in use of the truck is expected to be RM11,240. At 31 December 2014, the market price for Putra’s truck is RM11,300. If the truck was sold, license and title fees of RM300 would be paid.

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