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Free InquiryPinot Ltd acquired some machinery at a cost of $1 million, which it accounts for using the cost method. As at 30 June 2020 the machinery had accumulated depreciation of $200,000. On 30 June 2020 it was determined that the machinery could be sold at a price of $650,000 and the costs to sell would be $20,000. Alternatively, the machinery is expected to have a useful life of 5 years and the net cash flows expected to be generated from the machine would be $180,000 over each year. At 40 June 2020 it is expected that the market would require a rate of return of 7 per cent on this type of asset.
Required:
Determine whether an impairment loss needs to be recognised for this asset and also provide the journal entry.
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