At 30 June 2009, Smithers Ltd reported the following assets:
Land $ 50 000
Plant 250 000
Accumulated depreciation (50 000)
Goodwill 8 000
Inventory 40 000
Cash 2 000
Additional information:
All assets are measured using the cost model.
At 30 June 2009, the recoverable amount of the entity, considered to be a single cash-generating unit, was $272 000.
For the period ending 30 June 2010, the depreciation charge on plant was $18 400. If the plant had not been impaired the charge would have been $25 000.
At 30 June 2010, the recoverable amount of the entity was calculated to be $13 000 greater than the carrying amount of the assets of the entity. As a result, Smithers Ltd recognised a reversal of the previous years impairment loss.
Required:
Prepare the journal entries relating to the impairment at 30 June 2009.
Prepare the journal entries relating to the impairment at 30 June 2010.
Explain in your own words, using appropriate referencing, what guidance is provided by the standards in relation to recognition and reversal of impairment losses.