Question

In: Accounting

Information related to equipment owned by Brownfield Company follows: Original cost $900,000 Accumulated depreciation to date...

Information related to equipment owned by Brownfield Company follows:

Original cost $900,000

Accumulated depreciation to date $100,000

Expected future cash flows $825,000

Fair value $790,000

Value in use $785,000

Selling costs $30,000

Assuming Brownfield will continue to use the equipment, test the asset for impairment under both IFRS and U.S. GAAP and discuss the results.

Expert Solution

Impairment loss on assert under GAAP is computed as follows-

Step 1: Compare the book value and fair value of the asset if book value exceeds the fair value then asset should be impaired.

Book value of the asset = Original cost - Accumulated depreciation

= $900,000 - $100,000

= $800,000

Expected future cash flows = $825,000

Since, book value of the asset is less than the expected future cash flows, therefore asset will not get impaired.

Impairment under IFRS is computed as follows-

Under IFRS asset is impaired when the book value of the asset exceeds the higher of value in use or fair value adjusted to the cost of disposal.

Book value of the asset = $800,000

Value in use = $785,000

Fair value adjusted to the cost of disposal = Fair value - Cost of disposal

= $790,000 - $30,000

= $760,000

Impairment loss = Book value - Value in use

= $800,000 - $785,000

= $15,000

Under GAAP method the given asset is not impaired but under IFRS method generally assets get impaired earlier than the GAAP method.

ekkarill92 answered 4 months ago

Equipment with an original cost of $51,422 and accumulated depreciation of $33,306 was sold at a...

Equipment with an original cost of $51,422 and accumulated depreciation of $33,306 was sold at a loss of $5,155. As a result of this transaction, cash would a.increase by $12,961 b.increase by $51,422 c.decrease by $5,155 d.decrease by $33,306

If a fixed asset with an original cost of 18,000 and accumulated depreciation of 2000 and...

If a fixed asset with an original cost of 18,000 and accumulated depreciation of 2000 and sold for 15,000 the company must

Lease or Sell Kincaid Company owns equipment with a cost of $363,300 and accumulated depreciation of...

Lease or Sell Kincaid Company owns equipment with a cost of $363,300 and accumulated depreciation of $56,600 that can be sold for $275,700, less a 3% sales commission. Alternatively, Kincaid Company can lease the equipment for three years for a total of $288,500, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Kincaid Company on the equipment would total $16,500 over the three year lease....

Equipment that cost $594000 and has accumulated depreciation of $270000 is exchanged for equipment with a...

Equipment that cost $594000 and has accumulated depreciation of $270000 is exchanged for equipment with a fair value of $432000 and $108000 cash is received. The exchange lacked commercial substance. The new equipment should be recorded at: *Please show all work** The answer is $259,200 but not sure how to get it

Equipment that cost $398,100 and has accumulated depreciation of $318,900 is exchanged for equipment with a...

Equipment that cost $398,100 and has accumulated depreciation of $318,900 is exchanged for equipment with a fair value of $160,000 and $40,000 cash is received. The exchange lacked commercial substance. (a) Calculate the gain to be recognized from the exchange. Gain recognized $

32. Nabors Finance Company reported equipment with an original cost of $379,000 and $344,000 and accumulated...

32. Nabors Finance Company reported equipment with an original cost of $379,000 and $344,000 and accumulated depreciation of $153,000 and $128,000, respectively in its financial statements for years ended December 31, 2020 and 2019. During 2020, Nabors purchased equipment costing $50,000 and sold equipment with carrying amount of $9,000. What amount should Nabors report as depreciation expense for 2020? a. $19,000 c. $31,000 b. $25,000 d. $34,000

Presented below is information related to equipment owned by Blossom Company at December 31, 2020. Cost...

Presented below is information related to equipment owned by Blossom Company at December 31, 2020. Cost $11,070,000 Accumulated depreciation to date 1,230,000 Expected future net cash flows 8,610,000 Fair value 5,904,000 Blossom intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $24,600. As of December 31, 2020, the equipment has a remaining useful life of 4 years. Prepare the journal entry (if any) to record the impairment of the...

Presented below is information related to equipment owned by Pronghorn Company at December 31, 2017. Cost...

Presented below is information related to equipment owned by Pronghorn Company at December 31, 2017. Cost $9,990,000 Accumulated depreciation to date 1,110,000 Expected future net cash flows 7,770,000 Fair value 5,328,000 Pronghorn intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $22,200. As of December 31, 2017, the equipment has a remaining useful life of 4 years. a) prepare the journal entry (if any) to record the impairment of...

resented below is information related to equipment owned by Windsor Company at December 31, 2020. Cost...

resented below is information related to equipment owned by Windsor Company at December 31, 2020. Cost $9,720,000 Accumulated depreciation to date 1,080,000 Expected future net cash flows 7,560,000 Fair value 5,184,000 Windsor intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $21,600. As of December 31, 2020, the equipment has a remaining useful life of 5 years. Prepare the journal entry (if any) to record the impairment of the...

Presented below is information related to equipment owned by Whispering Company at December 31, 2020. Cost...

Presented below is information related to equipment owned by Whispering Company at December 31, 2020. Cost $9,990,000 Accumulated depreciation to date 1,110,000 Expected future net cash flows 7,770,000 Fair value 5,328,000 Whispering intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $22,200. As of December 31, 2020, the equipment has a remaining useful life of 4 years. Correct answer iconYour answer is correct. Prepare the journal entry (if any)...