Reference no: EM132894018

Division One is one of the cash-generating units of Black Ltd. The carrying amounts of Division One's assets as at 30 June 20X3 are listed below.

Machinery                          $60,000
Accumulated depreciation     (24,000)
Plant                                  80,000
Accumulated depreciation      (32,000)
Cash                                    5,000
Accounts receivables             15,000
Inventory                            10,000
Goodwill                               12,000
Accounts payable                  15,000
Long-term loans                      10,000

Accounts receivables are regarded as collectable, and the inventory's fair value less costs of disposal is equal to its carrying amount. The depreciation expenses for Machinery and Plant are $12,000 and $16,000, respectively.

Due to poor economic conditions at 30 June 20X3, Black Ltd believes that Division One's assets may be impaired. Accordingly, Black Ltd determines the recoverable amount of Division One to be $106,000. Any impairment loss is allocated in accordance with AASB 136: Impairment of Assets.

Black recognises an impairment loss of $20,000 by recording the following journal entry:

Journal entry:

Impairment Loss                                              $20,000
Goodwill                                                         $12,000
Acc'd Dep'n and impairment losses - Machinery        3,429
Acc'd Dep'n and impairment losses - Plant                 4,571
(Allocation of impairment loss)

• After the impairment loss has been recognised, Black Ltd increases the depreciation of Machinery and Plant to $16,000 and $20,000, respectively.
• During the financial year 20X3-20X4, the economy has picked up and Black Ltd estimates the recoverable amount of Division One at $13,000 higher than its carrying amount. In particular, the recoverable amount of Plant at 30 June 20X4 is $31,000. Assume all inventory has been sold during the year, and no fixed asset has been written off.

Required:

Problem 1: Prepare the relevant journal entries for Division One as at 30 June 20X4 to account for the reversal of the impairment loss in accordance with the requirements of AASB 136: Impairment of Assets. Please show all workings.