top of page
Search
• BAE

# Calculations of why an impairment loss needs to be recognized in relation to the machinery

Questions: 1.

My bank Ltd acquired some machinery at a cost of \$2 000 000. As at 30 June 2022 the machinery had accumulated depreciation of \$400 000 and an expected remaining useful life of four years. On 30 June 2022 it was determined that the machinery could be sold at a price of \$1 200 000 and that the costs associated with making the sale would be \$50 000. Alternatively, the machinery is expected to be useful for another four years and it is expected that the net cash flows to be generated from the machine would be \$390 000 over each of the next four years. It is assessed that at 30 June 2022 the market would require a rate of return of 6 per cent on this type of machinery.

Required

a) Explain and show calculations of why an impairment loss needs to be recognized in relation to the machinery.

b) Provide the appropriate journal entry at 30 June 2022 to account for the impairment.

c) Provide the journal entry to account for depreciation in 2023. 2. On 1 July 2022 Kiama Ltd issues \$5 million in five-year bonds that pay interest every six months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires a rate of return of 10 per cent.

The interest expense is calculated using the effective-interest method. Determine the issue price.

a) Provide the journal entries at: i) 1 July 2022 ii) 30 June 2023 iii) 30 June 2024 3. On 1 July 2023, Flyer Ltd decides to lease an aeroplane from Finance Ltd. The term of the lease is 20 years. The implicit interest rate in the lease is 10 per cent. It is expected that the aeroplane will be scrapped at the end of the lease term. The fair value of the aeroplane at the commencement of the lease is \$2 428 400. The lease is non-cancellable and requires Flyer to return the aeroplane to Finance Ltd at the end of the lease, and also it requires a lease payment of \$300 000 on inception of the lease (on 1 July 2023) and lease payments of \$250 000 on 30 June each year (starting 30 June 2024). There is no residual payment required. Required a) Provide the journal entries for the lease in the books of Flyer Ltd as at 1 July 2023. b) Provide the journal entries for the lease in the books of Finance Ltd as at 1 July c) Provide the journal entries in the books of Flyer Ltd for the final year of the lease (that is, the entries in 20 yearsâ€™ time) d) Provide the journal entries in the books of Finance Ltd for the final year of the lease (that is, the entries in 20 yearsâ€™ time).

1. On 1 June 2023 Safe Boards Ltd invested in five hundred 7 per cent, ten-year Teleco bonds with a face value of \$100 each. The bonds were issued at face value. On 30 June 2023, the Teleco bonds, which are traded in an active market, had a market value of \$105. State whether Safe Boards Ltd can classify the Teleco bonds as being measured at amortised cost. If measured at amortised cost, give the amount at which the bonds should be reported in the statement of financial position at 30 June 2023. If the bonds were acquired for speculative purposes, give the amount at which the bonds should be reported in the statement of financial position at 30 June 2023. If a change in fair value is recognised, where should it be recognised?

2. a) The sales for an organisation within an accounting period were \$340 000, opening accounts receivable was \$40 000, and closing accounts receivable was \$15 000. There were no doubtful debts expenses for the period. All sales are made on credit terms, meaning there were no cash sales. How much cash was actually received from customers within the accounting period? b) Sunshine Beach Ltd started the accounting period with a liability for accrued wages of \$50 000. Wages expense for the year was \$780 000 and the closing balance of accrued wages was \$65 000. How much cash was paid to employees?