Question

Exercise 11-23 The information that follows relates to equipment owned by Waterway Limited at December 31, 2020: Cost $8,010,000 Accumulated depreciation to date 890,000 Expected future net cash flows (undiscounted) 6,230,000 Expected future net cash flows (discounted, value in use) 5,651,500 Fair value 5,518,000 Costs to sell (costs of disposal) 44,500 At December 31, 2020, Waterway discontinues use of the equipment and intends to dispose of it in the coming year by selling it to a competitor. It is expected that the costs of disposal will total $44,500.

Assume that Waterway is a private company that follows ASPE. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) 1. Prepare the journal entry at December 31, 2020, to record asset impairment, if any. 2. Prepare the journal entry to record depreciation expense for 2021. 3. Assume that the asset was not sold by December 31, 2021. The equipment’s fair value (and recoverable amount) on this date is $5.79 million. Prepare the journal entry, if any, to record the increase in fair value. It is expected that the costs of disposal will total $44,500. No. Account Titles and Explanation Debit Credit (1) enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount (2) enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount (3) enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT

Repeat the requirements in (a) above assuming that Waterway is a public company that follows IFRS, and that the asset meets all criteria for classification as an asset held for sale. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (1) enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount (2) enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount (3) enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount

Answer 1

Answer:

Answer-1:
Account	Debit	Credit
Impairment loss	$     1,468,500
Accumulated depreciation and impairment loss		$   1,468,500

	Explanation:
	Cost	8,010,000
	Less: Accumulated depreciation	890,000
(a)	Carrying amount of asset	$     7,120,000
(b)	Value in use = PV of future cash flows	$     5,651,500
(c)	Fair value less cost of disposal ($5,518,000-44,500)	$     5,473,500
(d)	Recoverable amount = higher of (b) and (c)	$     5,651,500
(e)	Impairement loss = (a) - (d) = $7,120,000 - 5,651,500	$     1,468,500

Answer-2:
Account	Debit	Credit
Depreciation expense	$     1,412,875
Accumulated depreciation		$   1,412,875

Explanation:
Cost	$     8,010,000
Less: Accumulated depreciation	890,000
Carrying amount of asset	7,120,000
Less: Impairement loss	1,468,500
Beginning written down value as on 2021	5,651,500
Useful life	4 years
Depreciation expense = $5,651,500/4=	$     1,412,875

Answer-3:

No entry required.