Question

In: Accounting

ABC purchased a machine on Jan 1, 2016 for $92788 with an estimated useful life of...

ABC purchased a machine on Jan 1, 2016 for $92788 with an estimated useful life of 12 years and no salvage value ABC uses the straight line depreciation method On December 31, 2018 technological changes suggest the machine may be impaired On December 31, 2018 the machine is expected to generate net cash flows of $6014 per year over its remaining life On December 31, 2018 the fair value of the machine is $45126.42 On Dec 31, 2018 the carrying value of the machine before any impairment loss is: Answer 69592 On Dec 31, 2018 the impairment loss, if any, is (enter as a negative amount): Answer On Dec 31, 2018 the carrying value of the machine after any impairment loss is: Answer

Solutions

Expert Solution

  • All working forms part of the asset
  • The impairment of asset occurs when its carrying value (book value) exceeds the amount recoverable from that asset.
  • Annual amount given = $ 6014 for remaining 9 years = $ 54,126
  • This value is less than book value on Dec 31, 2018 and the same has been calculated below:

Date

Amount

Working

01-Jan-16

Cost

$           92,788.00

Given

Estimated Life

12

Given

Annual Depreciation

$             7,732.00

[92788 / 12] = not rounded off

31-Dec-18

Three year accumulated Depreciation

$           23,196.00

[7732 x 3 years]

31-Dec-18

Carrying Value before Impairment

$           69,592.00

[92788 - 23196] = Already entered by you as ‘Answer’

31-Dec-18

Fair Value

$           45,126.42

Given

31-Dec-18

Impairment Loss

$           24,465.58

[69592 - 45126.42]

31-Dec-18

Carrying Value after impairment loss

$           45,126.42

[equal to the fair value on impairment date]

  • Answer 1: On 31 Dec 2018 Carrying value before Impairment Loss = $ 69,592 [Already filled in by you, and also shown in above calculation]
  • Answer 2: Impairment Loss = $ (24,465.58)
  • Answer 3: On 31 Dec 2018 Carrying Value after impairment loss = $ 45,126.42
  • Note: if answers are to be rounded to 2 decimal places, the answers to 1,2 and 3 would be:

$ 69,591.01

$ (24,464.59), and

$ 45,126.42, respectively


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