Based on the information provided, here is the depreciation and impairment calculation for both the equipment and the machine owned by Ali Bhd:
1. Equipment:
- Cost of equipment: RM1,200,000
- Expected economic life: 15 years
Using the straight-line method, the annual depreciation expense for the equipment is:
RM1,200,000 / 15 years = RM80,000 per year
For the replacement part:
- Cost of replacement part: RM520,000
The remaining useful life of the equipment after the replacement is:
15 years - 5 years (2012-2017) = 10 years
Using the straight-line method, the annual depreciation expense for the replacement part is:
RM520,000 / 10 years = RM52,000 per year
2. Machine owned:
- Fair value on 1 January 2016: RM6,400,000
- Remaining useful life on 1 January 2016: 8 years
Using the straight-line method, the annual depreciation expense for the machine owned is:
RM6,400,000 / 8 years = RM800,000 per year
On 31 December 2017, an impairment test was performed with the following results:
- Fair value less cost to sell: RM4,100,000
- Value-in-use: RM4,200,000
As the fair value less cost to sell is lower than the carrying amount of the machine owned, an impairment loss is recognized. The impairment loss is calculated as:
Carrying amount - Value-in-use = RM6,400,000 - RM4,200,000 = RM2,200,000
However, the impairment loss is subject to a recoverability test. Since the fair value less cost to sell is higher than the value-in-use (RM4,100,000 > RM4,200,000), there is no impairment loss to be recognized.
Ali Bhd acquired an equipment at a cost of RM1,200,000 on 1 January 2012. The expected economic life of the equipment was 15 years. On 1 January 2017, a major part of the equipment costing RM300,000 was obsolete and thus was replaced with a new part at a cost of RM520,000. The replacement will improved the performance of the equipment.
Additionally, Ali Bhd also owned a machine used for production of goods. On 1 January 2016, the fair value of the machine owned was RM6,400,000 with remaining useful life of 8 years. An impairment test was then performed on 31 December 2017 when the fair value less cost to sell was RM4,100,000 whereas the value-in-use was determined to be RM4,200,000. The company's financial year ends on 31 December each year.
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