An asset (which has never been revalued) has a carrying amount of £100,000. The asset is being depreciated on the straight-line basis, with a remaining useful life of three years and a residual value of £10,000.
The asset is expected to generate net cash inflows of £20,000 per year for the next three years and then to be sold for £10,000. Disposal costs are expected to be negligible.
At present, the asset could be sold for £50,000. Disposal costs would be £2,000.
Required:
(a) Assuming a of 10% and that all cash flows occur at the end of the year concerned, determine the asset’s value in use.
(b) Calculate the amount of the impairment loss which has occurred and explain how this should be accounted for.
(c) Calculate the amount of depreciation that should be charged in relation to the asset for each of the next three years, assuming that the straight-line method will continue to be used.
