Question

THE FOLLOWING INFORMATION RELATES TO Q16 to Q18 On 1 January 2020 , the following information is available about a Rocket owned by Longford Company: Cost $95,000,000; Accumulated Depreciation $45,000,000. Until 1 January 2020, the Rocket has not had any Loss on Impairment. On 1 January 2020, Longford Company finds that the Recoverable Amount of the Rocket is $40,000,000. The remaining life of the Rocket on 1 January 2020 is 5 years and the Residual Value is zero. On 1 January 2021, Longford Company finds that the Recoverable Amount of the Rocket is $37,000,000. What is the Loss on Impairment (if any) on the Rocket on 1 January 2020 ?

Answer 1

The Loss on Impairment of the rocket on 1 January 2020 is $10,000,000, calculated as the difference between its carrying amount of $50,000,000 and the recoverable amount of $40,000,000.

Step-by-step explanation:

The Loss on Impairment is computed as the difference between the carrying amount and the recoverable amount of the asset. As given, the carrying amount of the rocket is the original cost minus the accumulated depreciation, which is $95,000,000 - $45,000,000 = $50,000,000. The recoverable amount is given as $40,000,000. Thus, the loss on impairment on 1 January 2020 would be the carrying amount minus the recoverable amount, which is $50,000,000 - $40,000,000 = $10,000,000.