Nyhiraba Limited purchased an asset on 1st January 2015 for an amount of R5 million. The asset has an economic useful life of 10 years for which the company uses to generate operational income. On 1st July 2018, the asset’s fair value was R3.8 million, and the cost to sell was estimated at R800,000. The asset’s value in use on that date was valued at R2.95 million. Determine whether the asset is impaired or not under IAS 36. Justify your answer with calculations and an explanation.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
2.1. Nyhiraba Limited purchased an asset on 1st January 2015 for an amount of R5 million. The asset
has an economic useful life of 10 years for which the company uses to generate operational income.
On 1st July 2018, the asset’s fair value was R3.8 million, and the cost to sell was estimated at R800,000.
The asset’s value in use on that date was valued at R2.95 million. Determine whether the asset is
impaired or not under IAS 36. Justify your answer with calculations and an explanation.
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