Reference no: EM132777188

Sim Lian Ltd acquired a forklift machine for $125,000 on 1 July 2022. It depreciated the asset at 10% p.a. on a straight-line basis. On 30 June 2024, Sim Lian Ltd conducted an impairment test on the asset. It determined that the asset could be sold to other entities for $70,000 with costs of disposal of $5,000.

Management expect to use the forklift machine for the next four years with expected cash flows from use of the forklift machine being:

Cash Flows of Sim      Lian Ltd.
2024                       $40,000
2025                          30,000
2026                    25,000
2027                      20,000

The rate of return expected by the market on this forklift machine is 8% p.a.

Required:

Problem a) Assess whether the forklift machine is impaired.

Problem b) Provide the appropriate journal entry to recognise any impairment loss.