Effects of impairment test for accounting period

Reference no: EM131003961

On 2 January, 20X3 Dinasus Ltd purchased a specialized machine tool for £3 000 000. The straight-line depreciation schedule established an annual depreciation charge of £600 000 over a five-year useful life. Changes in market demand brought the company to carry out an impairment test at the end of accounting period 20X6. The impairment test was executed by external valuation experts and they concluded that (a) the machine tool suffered permanent impairment of its operational value, (b) the original useful life was still appropriate, (c) the net present value calculation of the cash flows to be generated by the machine tool amounted to £800 000 and (d) £950 000 is a reasonable estimate of the net selling price of the machine tool at the time of the impairment test.

Required: What are the accounting effects of this impairment test for accounting period 20X6?

Reference no: EM131003961

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