Question 1: Impairment of Assets

Spear Ltd reported the following information in its statement of financial position at 30
June 2015:

Plant $650 000

Accumulated depreciation – plant (150 000)
Intangible assets 300 000
Accumulated amortisation (100 000)
Land 300 000
Total non-current assets 1 000 000
Cash 50 000
Inventory 180 000
Total current assets 230 000
Total assets $1 230 000
Liabilities 150 000
Net assets $1 080 000

At 30 June 2015, Spear Ltd analysed the internal and external sources of information
that would indicate deterioration in the worth of its assets. It determined that there were
indications of impairment.
Spear Ltd calculated the recoverable amount of the assets to be $980 000.

Required
Provide the journal entry for any impairment loss at 30 June 2015.

If it is know that, the land’s Recoverable Amount is $239 000, then the allocation of the
impairment loss is as follows:
Question 2: Accounting for lease by the lessee

Florida Sun Ltd has entered into a lease arrangement to acquire the right to use an item
of equipment. The terms of the lease are as follows:

Inception of the lease and the beginning of the lease term 31 December 2015
Termination date of the lease 31 December 2020
Period of the lease 5 years
Bargain purchase option at end of the lease term $2 715
Interest rate implicit in the lease 15%
Lease rental amount payable annually in advance $30 000
Fair value of leased asset $125 000

The lease is non-cancellable. Florida Sun Ltd is responsible for maintaining and
insuring the equipment. Florida Sun Ltd plans to purchase the equipment at the end of
the five year lease period. The economic life of the equipment is six years at which time it
will have no scrap value. Florida Sun Ltd has a financial year ending 31 December.

Required
A. Prepare the lease repayment schedule.
B. Prepare the journal entries of Florida Sun Ltd in respect for the lease for all years
assuming it is a finance lease.