Gibbon Corp., a Canadian public corporation, owns equipment for which the following year-end information is available: Carrying amount (book value)............$59,000
Recoverable amount.............................52,000
Fair value less disposal costs............. $\quad 55,000$ Which of the following best describes the proper accounting treatment for Gibbon's equipment?

Question

Quizplus · Accepted Answer

According to IAS 36 Impairment of Assets, the carrying amount of an asset should be compared to its recoverable amount to determine if there is impairment. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. In this case, the recoverable amount is $52,000, which is lower than the carrying amount of $59,000, indicating that the equipment is impaired. 
Since the fair value less disposal costs is $55,000, this is the amount that should be used as the recoverable amount. Therefore, a loss of $4,000 ($59,000 - $55,000) should be recognized. 
The loss can be reversed in future periods if there is a change in the estimates used to determine the recoverable amount, but only up to the amount of the original impairment loss. So, option D is the correct answer.

Gibbon Corp 55,000\quad 55,00055,000 Which of the Following Best Describes the Proper Accounting Treatment

Gibbon Corp $\quad 55,000$ Which of the Following Best Describes the Proper Accounting Treatment