Scribd
Upload
57 views2 pages

Quantum Bhd and Jeremies Sdn Bhd Impairment Analysis

The document describes two questions regarding impairment testing of assets for two companies, Quantum Bhd and Jeremies Sdn Bhd. For Quantum Bhd, the summary calculates the value in use and recoverable amount of a substantial asset to determine if an impairment loss exists. For Jeremies Sdn Bhd, the summary calculates any impairment losses as of 2008 for two machines, and calculates the reversal of impairment losses as of 2009 based on a change in estimated recoverable amounts.

Uploaded by

chai leyi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
57 views2 pages

Quantum Bhd and Jeremies Sdn Bhd Impairment Analysis

The document describes two questions regarding impairment testing of assets for two companies, Quantum Bhd and Jeremies Sdn Bhd. For Quantum Bhd, the summary calculates the value in use and recoverable amount of a substantial asset to determine if an impairment loss exists. For Jeremies Sdn Bhd, the summary calculates any impairment losses as of 2008 for two machines, and calculates the reversal of impairment losses as of 2009 based on a change in estimated recoverable amounts.

Uploaded by

chai leyi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Question 1

Quantum Bhd has a single substantial asset which it uses. The carrying amount of the asset
after 4 years is RM6 million. There is no expected residual value. Due to world economic
conditions, the revenue generated from the machine is substantially lower than expected over
the rest of its useful life of 6 years. The net future cash flow for the next 6 years, based on
management’s best estimate are (RM’000):

Year 1 2 3 4 5 6
Future cashflow 800 860 900 850 800 750

If the machine is sold now, it would realise RM4.65 million, net selling price. The
discount rate to be applied to the future cash flows is 9%.

Year 1 2 3 4 5 6
Discount factor 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963

Required:
a) Based on the future cash flow and the discount rate given, compute the value in use
for the Quantum Bhd’s substantial asset.
b) Determine the recoverable amount for the Quantum Bhd’s substantial asset
c) Compute the impairment loss for the Quantum Bhd’s substantial asset and show the
journal entry.

Question 2
Jeremies Sdn Bhd involved in manufacturing rubber gloves. On 1 January 2008 the company
is testing its manufacturing machine for impairment. It consists of two machines that were
purchased on January 2006 namely machine J100 and J200 which cost RM400,000 and
RM800,000 respectively. Both assets were being depreciated on a straight-line basis with an
expected useful life of 8 years.

Machine J100 could be sold to a buyer for a cash consideration of RM140,000 before taking
into accounts the selling cost of RM15,000 while the net selling price for machine J200 is
RM300,000.

In order to determine its value in use the management estimates the future cash flows that the
company expects to derive from the machine as below:

Year Types 2009 2010 2011 2012 2013


Future Cash flows (RM) Machine 25,000 32,000 33,000 36,000 43,000
J100
Machine 30,000 33,000 42,000 40,000 37,000
J200

The discount rate to be applied to the future cash flows is 14%.


Year 2009 2010 2011 2012 2013
Discount factor at 14% 0.877 0.769 0.675 0.592 0.519

On 31 December 2009 the company changed its composition of Board of Directors. The new
management decided to restructure its manufacturing plant strategy. It was assessed that the
impairment loss no longer exists. The recoverable amount of the machines were estimated at
RM370,000 and RM420,000 for machine J100 and J200 respectively.

Required:
(i) Calculate the impairment loss as at 31 December 2008 for machine J100 and
machine J200 and show the journal entry.
(ii) Calculate the depreciation after impairment as at 31 December 2008.
(iii) Calculate the reversal of impairment loss for machine J100 and machine J200 as at
31 December 2009.

You might also like