- 4 Marks
Question
In accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations, demonstrate how to account for the following transaction.
On 1 April 2016, Gologo Ltd purchased an equipment at a cost of GH¢450,000. It is being depreciated on a straight line basis over its useful economic life of 15 years. The reporting date of Gologo Ltd is 31 March. At 31 December 2020, the equipment was no longer needed by the entity. It was decided that the asset should be sold, and a buyer was being sought. The asset is advertised for sale at a price of GH¢275,000, which was a reasonable reflection of its fair value. It is anticipated that a transportation cost of GH¢30,000 will be incurred to deliver the item to the buyer. The sale is expected to occur within one year.
Required:
ii) Demonstrate how to account for the above transaction on 31 March 2021 in accordance with IFRS 5.
(4 marks)
Answer
Since the fair value is lower, the asset should be measured at GH¢245,000 (W3) in the statement of financial position.
Workings:
W1 – Carrying value
Cost (1 March 2020) = GH¢450,000
Accum. dep. to 31 March 2020 (450,000 x 1/15 x 4 years) = (GH¢120,000)
Carrying value (31 March 2020) = GH¢330,000
Dep. from 1 April 2020 to 31 December 2020 (450,000 x 1/15 x 9/12) = (GH¢22,500)
Carrying value (31 December 2020) = GH¢307,500
W2 – Fair value less cost to sell
Fair value = GH¢275,000
Selling expenses = (GH¢30,000)
Fair value less cost to sell = GH¢245,000
W3 – Compare carrying amount with fair value
Carrying amount = GH¢307,500
Fair value less cost to sell = GH¢245,000
Since the fair value is lower, the asset should be measured at GH¢245,000.
Impairment loss: (GH¢307,500 – GH¢245,000) = GH¢62,500
Entry:
Dr. Cost of sales = GH¢62,500
Cr. non-current asset held for sale = GH¢62,500
- Tags: Fair Value, Held for Sale, IFRS 5, Impairment
- Level: Level 2
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