Question
You are currently on work experience at CMAS Co-operative Ltd and the General
Manager has asked your supervisor to prepare an explanation for some concerns raised by the
Board of Directors. Your supervisor has to leave the office as a result of an emergency, and he
has asked you to prepare the information for his review to be submitted to the General
Manager.
You are also helping to prepare the organization’s year-end financial statement and have been
asked to carry out an impairment review of non-current assets held. You have obtained details
of two photocopiers in the print room as follows:
i.
Machine 1 – is six years old and is a relatively slow copier based on old technology. The
cost of this machine was $80,000 and depreciation to date is $48,000, with NBV of
$32,000. Since the arrival of the other copier, this machine has been relegated to
“standby” use. The fair value of the machine is $10,000 if sold on the second-hand
market and no selling cost will be incurred and the value in use is $20,000.
ii.
Machine 2 – is only a few months old. It is a digital copier incorporating the latest
technology, very fast and versatile and has the capacity to meet the needs of the entire
organization. It costs $150,000 and depreciation at the end of the accounting period will
be $15,000, NBV of $135,000. The fair value of the machine is $100,000 if sold on the
second-hand market and no selling cost. The value in use is $550,000.
(14 marks)