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    Impairment of Assets

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    techna8
    Epsilon purchased a machine for 20 million francs in April 2018. Installation costs were $250,000 and training costs were $200,000. The machine is expected to be used until March 2023, with decommissioning costs estimated at 3 million francs. An impairment review in September 2018 estimated the machine's recoverable amount was $2.5 million due to difficult trading conditions.

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    Impairment of Assets

    Uploaded by

    techna8
    64 views7 pages
    Epsilon purchased a machine for 20 million francs in April 2018. Installation costs were $250,000 and training costs were $200,000. The machine is expected to be used until March 2023, with decommissioning costs estimated at 3 million francs. An impairment review in September 2018 estimated the machine's recoverable amount was $2.5 million due to difficult trading conditions.

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    Epsilon purchased a machine for 20 million francs in April 2018. Installation costs were $250,000 and training costs were $200,000. The machine is expected to be used until March 2023, with decommissioning costs estimated at 3 million francs. An impairment review in September 2018 estimated the machine's recoverable amount was $2.5 million due to difficult trading conditions.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    64 views7 pages

    Impairment of Assets

    Uploaded by

    techna8
    Epsilon purchased a machine for 20 million francs in April 2018. Installation costs were $250,000 and training costs were $200,000. The machine is expected to be used until March 2023, with decommissioning costs estimated at 3 million francs. An impairment review in September 2018 estimated the machine's recoverable amount was $2.5 million due to difficult trading conditions.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 7

    IMPAIRMENT OF ASSETS

    DEFINITIONS
     Carrying amount: Amount at which an asset is
    recognized after deducting any accumulated
    depreciation (amortization) and accumulated
    impairment losses thereon.

     Fair value: Price that would be received to sell an


    asset or paid to transfer a liability in an orderly
    transaction between market participants at the
    measurement date.

     Costs of disposal: Incremental costs directly


    attributable to the disposal of an asset or cash-
    generating unit, excluding finance costs and
    income tax expense.
    DEFINITIONS
     Impairment loss: Amount by which the
    carrying amount of an asset exceeds its
    recoverable amount.

     Recoverable amount of an asset is the


    higher of its fair value less costs of disposal
    and its value in use.

     Value in use: is the present value of the


    future cash flows expected to be derived
    from an asset.
     Epsilon is an entity which prepares financial statements to
    30 September each year.

     Purchase of machine On 1 April 2018, Epsilon accepted


    delivery of a large and complex machine from an overseas
    supplier. The agreed purchase price for the machine was 20
    million francs – the functional currency of the supplier.

     Under the terms of the agreement with the supplier 12·6


    million francs was payable on 31 July 2018, with the
    balance of 7·4 million francs being payable on 30
    November 2018.

     The payment due on 31 July 2018 was made in accordance


    with the terms of the agreement. Epsilon does not use
    hedge accounting.


     On 1 April 2018, Epsilon incurred direct costs of $250,000 in installing
    the machine at its premises. Although the machine was ready for
    use from 1 April 2018,

     Epsilon did not bring the machine into use until 30 April 2018.
    During April 2018 Epsilon incurred costs of $200,000 in training
    relevant staff to use the machine.

     The directors of Epsilon estimate that the machine is capable of


    being usefully employed in the business until 31 March 2023, and
    that it will have no residual value at that date

     Relevant exchange rates (francs to $1) are as follows:


    1 April 2018 – 10 francs to $1.
    30 April 2018 – 9·5 francs to $1.
    31 July 2018 – 9 francs to $1.
    30 September 2018 – 8 francs to $1.
    Average rate for the period from 1 April 2018 to 30 September
    2018 – 9·2 francs to $1.

     Decommissioning:

     On 31 March 2023, Epsilon will be legally


    required to decommission the machine using
    the original supplier.

     The directors of Epsilon estimate that the


    cost of safely decommissioning the machine
    on 31 March 2023 will be 3 million francs.

     Note: A relevant annual rate to be used in


    any discounting calculations is 8% and the
    appropriate discount factor is 0·681.
     Impairment review:

     During the final few months of the


    accounting period ending on 30 September
    2018, Epsilon experienced difficult trading
    conditions. These difficulties did not affect
    the ability of Epsilon to operate as a going
    concern.

     In an impairment review of the machine at


    30 September 2018, the directors of Epsilon
    estimated that the machine’s recoverable
    amount was $2·5 million.

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