Question 1

Section A

SteelForge Heavy Industries purchased a blast furnace on 1 January 20X2 for $5,000,000. It has an estimated useful life of 20 years and a residual value of $200,000. On 31 December 20X5, due to new environmental regulations, the furnace was assessed for impairment. Its fair value less costs to sell is $3,800,000 and its value in use is $3,950,000. What is the impairment loss to be recognized in the year ended 31 December 20X5?

Accepted Answer

1. Calculate annual depreciation: (Cost - Residual) / Useful life. 2. Calculate Carrying Amount at 31 Dec 20X5 (after 4 years). 3. Determine Recoverable Amount (higher of Fair Value less costs to sell and Value in Use). 4. Impairment = Carrying Amount - Recoverable Amount.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the lower of FV and VIU as the recoverable amount, or forgetting to deduct residual value when calculating depreciation.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 6

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