EZ Bhd bought 5 specialized machines on 1 January 2003. Each machine costs RM 100,000. The machines useful life is 10 years with no residual value. EZ Bhd uses the straight line method of depreciation. Since these machines are specialized, they do not have a market value. On 31 st December 2005, it was found that the demand for the products manufactured by the machines had declined, thus the machines value in use was only RM 320,000. On 31 December 2006, the demand for the product picked up and the value in use of the machines was RM 290,000.
Required: Show the extract of the Balance Sheet as at 31 December 2005 and the extract of the Balance Sheet as at 31 December 2006.
Answer:
31/12/2005
Carrying amount = (RM 100,000 x 5 specialized machine)/ 10 years of useful life
= RM 500,000 – (RM 50,000 x 3 years)
= RM 350,000
Recoverable amount = RM 320,000 CA > RA = Impaired
Impairment loss = RM30,000
31/12/2006
Depreciation = RM 320,000/7 years
= RM 45,714
Carrying amount = RM 320,000 – RM 45,714
= RM 274,286
Recoverable amount = RM 290,000
RA > CA = continue using the carrying amount
Extract of Balance Sheet as at 31 December 2005:
Machines RM 350,000
Accumulated Depreciation (RM 150,000)
Impairment Loss (RM 30,000)
Net carrying amount RM 170,000
Extract of Balance Sheet as at 31 December 2006:
Machines RM 274,286
Accumulated Depreciation (RM 196,999)
Net carrying amount RM 77,287