Otter Ltd has an item of plant with a cost of $4,200,000, and at 30 June 20X4 the accumulated depreciation was $600,000 and its estimated residual amount $200,000; its accumulated impairment was $150,000 at the beginning of the reporting period.
-Otter Ltd has adopted the cost model for the class of assets.At reporting date, the directors determined that the asset's value in use was $3 200,000, its fair value was $3,300,000 and the estimated costs to sell it $150,000.At what amount will it be reported in the balance sheet?
A)$3,350,000
B)$3,150,000
C)$3,500,000
D)$3,200,000

Question

Quizplus · Accepted Answer

The asset will be reported at its value in use of $3,200,000 since this is lower than its fair value less costs to sell ($3,300,000 - $150,000 = $3,150,000) and higher than its carrying amount after accounting for depreciation and impairment ($4,200,000 - $600,000 - $150,000 = $3,450,000). The cost model does not consider fair value less costs to sell directly, but the impairment review does, and the lowest recoverable amount is used.

Otter Ltd Has an Item of Plant with a Cost