On 31 December 2012 HiRise Ltd's balance sheet shows motor vehicles at a cost price of $200,000 less accumulated depreciation $50,000.HiRise Ltd uses the cost model to value its assets.On 31 December 2012 an estimate is made that the recoverable amount of the vehicles is $120,000.Under IAS 36/AASB 136 the accounting entry to record the write down of the motor vehicles to recoverable amount is:

Question

Quizplus · Accepted Answer

According to IAS 36/AASB 136, when an asset's recoverable amount is less than its carrying amount, the asset must be written down to its recoverable amount, and an impairment loss must be recognized. In this case, the carrying amount of the motor vehicles is $150,000 ($200,000 cost - $50,000 accumulated depreciation), which is $30,000 more than the estimated recoverable amount of $120,000. Therefore, an impairment loss of $30,000 should be recognized. Since the impairment loss reduces the carrying amount of the asset, it must be credited to the accumulated depreciation and impairment losses account, and debited to the impairment loss on motor vehicles expense account. Thus, the accounting entry to record the write down of the motor vehicles to recoverable amount is:

Dr. Impairment loss on motor vehicles expense $30,000
Cr. Accumulated depreciation and impairment losses $30,000

On 31 December 2012 HiRise Ltd's Balance Sheet Shows Motor