Question

Duval Company acquired a machine on January 1, 2018, that costs $2,700 and has an estimated residual value of $200. Required a) Complete the following schedule for 2019 using: A) straight-line, B) units-ofproduction, C) double declining-balance Method Estimated Useful Life or Units Depreciation Expense for 2019 Accumulated Depreciation at 12/31/2019 A SL 5 years B UOP 10,000 units (estimated total) 1,000 units (actual year 2018) 1,200 units (actual year 2019) C DB 5 years b) Duval estimates the future cash flows from the asset (fair value) to be equal to $1,500. Using the straight-line method, at the end of 2019, what is the result of the impairment test?

Answer 1

Cost of the asset	$2,700
Residual value	$200
Useful Life	5years
Normal Depreciation rate per annum= 1/5	20%
Depreciation rate under DDB method	40%

Straight Line method:
Year	Depreciable amount( A)	Depreciation (A)*20%	Accumulated Depreciation	Written Down Value
2018	2500	500	500	2200
2019	2500	500	1000	1700
Units of Production method:
Year	Depreciable Amount(A)	Output Per annum(O)	Depreciation =(A)*(O)/10000	Accumulated Depreciation	Written Down Value
2018	2500	1000	250	250	2450
2019	2500	1200	300	550	2150
Double Decline Method:
Year	Depreciable amount( A)	Depreciation (A)*40%	Accumulated Depreciation	Written Down Value
2018	2700	1080	1080	1620
2019	1620	648	1728	972

B)Impairment:

An asset has to be impaired if the carrying amount of an asset is greater than the recoverable amount.

Recoverable amount means the lower of net selling value and the future cash flows from the asset.

Since there is no net selling value provided in the question, Future cash flows itself is the recoverable amount i.e., $1500.

Since the carrying amount(i.e., 1700) is greater than the recoverable amount, asset need to be impaired.

Calculation of Impairment loss:
Carrying amount	$1,700
Recoverable amount	$1,500
Impairment:	$200