Solution 1

2019
Cost of asset on July 1, 2018 500,000
Depreciation 2018 (500,000/10 years*6/12) (25,000)
Carrying amount on 31 Decemebr 2018 475,000
Depreciation 2019 @ 15 years (31,667)
NBV on December 31, 2019 443,333
FV 450,000
Cost to sell (20,000+5,000+10,000) (35,000)
415,000
Value in Use 421,148
Recoverable amount (421,148)
Impairment Loss 22,186

2022
NBV on December 31, 2019 421,148
Depreciation 2020 @ 14 years (30,082)
Depreciation 2021 @ 14 years (30,082)
Depreciation 2022 @ 14 years (30,082)
NBV on December 31, 2022 330,902
FV-CTS 325,000
VIU 344,725
Recoverable amount 344,725
HCA 348,333
Lower (344,725)
Reversal of Impairment (13,824)

W1 - Value in use for 2019 2020 2021 2022 2023 2024

Sales units 27,500 26,125 24,819 23,578 22,399
Sales price 18.00 17.64 17.29 16.94 16.60
Material (4.00) (4.20) (4.41) (4.50) (4.50)
Labor (3.00) (3.00) (3.00) (3.00) (3.00)
Cash flow per unit 11.00 10.44 9.88 9.44 9.10

Net cash flows 302,500 272,745 245,140 222,609 203,889

Operating cash flows (143,000) (143,000) (143,000) (143,000) (143,000)
(180,000-25,000-12,000)
159,500 129,745 102,140 79,609 60,889
PV Factor 0.90909 0.82645 0.75131 0.68301 0.62092
145,000 107,227 76,739 54,374 37,807
Value in Use 421,148
W2 - Value in use for 2022 2023 2024 2025 2026 2027
Sales unit 32,000 31,360 30,733 30,118 30,000
Net cash flow per unit 9.00 8.10 7.29 6.56 6.00

Net cash flows 288,000 254,016 224,042 197,605 180,000

Operating cash flows (143,000) (143,000) (143,000) (143,000) (143,000)
(180,000-25,000-12,000)
145,000 111,016 81,042 54,605 37,000
PV Factor 0.90909 0.82645 0.75131 0.68301 0.62092
131,818 91,749 60,888 37,296 22,974
Value in Use 344,725

W3 - Assessment of Recoverable Amount ACA HCA

Cost of asset on July 1, 2018 500,000 500,000
Depreciation 2018 (500,000 / 10 years * 6/12) (25,000) (25,000)
NBV on December 31, 2018 475,000 475,000
Depreciation 2019 (475,000 / 15 years) (31,667) (31,667)
NBV on December 31, 2019 443,333 443,333
Impairment Loss (22,186)
Recoverable amount / NBV on December 31, 2019 421,148
Depreciation 2020 @ 14 years (30,082) 1,585 (31,667)
Depreciation 2021 @ 14 years (30,082) 1,585 (31,667)
Depreciation 2022 @ 14 years (30,082) 1,585 (31,667)
NBV On December 31, 2022 (Before impairment) 330,902 348,333

Solution 2
Date Particulars Debit Credit
Depreciation expense (1,014,000 / 13 years) 78,000
31-Dec-21
Accumulated depreciation 78,000
Accumulated impairment 84,000
31-Dec-21
Reversal of impairment loss 84,000

Calculation of Impairment
Carrying amount on 31 December 2020 1,014,000
Dep 2021 (1,014,000 / 13 years) (78,000)
Carrying amount on 31 December 2021 936,000
FV - CTS (1,225,000 - 60,000 - 40,000) 1,125,000
VIU (W1) 1,117,642
Recoverable amount 1,125,000
Historical carrying amount (W2) 1,020,000
Lower of the two (1,020,000)
Reversal of impairment loss (84,000)
Workings

1 - Calculation of value in use 2022 2023 2024 2025 2026

Cash inflows 685,000 643,900 605,266 568,950 534,813
Cash outflows (320,000) (345,600) (373,248) (403,108) (435,356)
400,000
Net cash flows 365,000 298,300 232,018 165,842 499,457
Present value factor @ 12% 0.89286 0.79719 0.71178 0.63552 0.56743
325,893 237,803 165,146 105,396 283,405
Value in use 1,117,642

2 - Historical carrying amount ACA HCA

Carrying amount on 31 Dec 2019 Before impairment 1,190,000 1,190,000
Impairment Loss (98,000)
Carrying amount on 31 Dec 2019 After impairment 1,092,000 1,190,000
Depreciation for 2020 @ 14 years * (78,000) (85,000)
Carrying amount on 31 Dec 2020 1,014,000 1,105,000
Depreciation 2021 (78,000) (85,000)
Carrying amount on 31 Dec 2021 936,000 1,020,000

* Since depreciation is calculated on straight line method, the depreciation for 2020 will be same as 2021
i.e. 78,000. However it can also be calculated as follows:
Depreciation 2020
Considering the carryig amount of asset on 31 Dec 2019 to be 'X'
X - X = 1,014,000
14 years
X = Carrying amount = 1,092,000

X / 14 years = Depreciation = 78,000

Alternate Method to calculate the maximum possible amount of reversal of impairment loss
Impairment Loss booked in 2019 98,000
Benefit of reduced depreciation in 2020 due to impairment (7,000) (98,000 / 14 years)
91,000
Benefit of reduced depreciation in 2021 due to impairment (7,000) (98,000 / 14 years)
Maximum possible amount of reversal of impairment 84,000