Pina Colada Corporation uses special strapping equipment in its packaging business. The equipment was purchased in...

Pina Colada Corporation uses special strapping equipment in its packaging business. The equipment was purchased in January 2019 for $9.60 million and had an estimated useful life of 8 years with no residual value. In early April 2020, a part costing $840,000 and designed to increase the machinery’s efficiency was added. The machine’s estimated useful life did not change with this addition. By December 31, 2020, new technology had been introduced that would speed up the obsolescence of Pina Colada’s equipment. Pina Colada’s controller estimates that expected undiscounted future net cash flows on the equipment would be $6.05 million, and that expected discounted future net cash flows on the equipment would be $5.57 million. Fair value of the equipment at December 31, 2020, was estimated to be $5.38 million. Pina Colada intends to continue using the equipment, but estimates that its remaining useful life is now four years. Pina Colada uses straight-line depreciation. Assume that Pina Colada is a private company that follows ASPE.

Prepare the journal entry to record asset impairment at December 31, 2020, if any.

Fair value of the equipment at December 31, 2021, is estimated to be $5.66 million. Prepare any journal entries for the equipment at December 31, 2021.

Repeat part (b), assuming that on December 31, 2021, Pina Colada's management decides to dispose of the equipment. As at December 31, 2021, the asset is still in use and not ready for sale in its current state. In February 2022, Pina Colada's management will meet to outline an active program to find a buyer.

Repeat part (b), assuming that the equipment is designated as "held for sale" as of January 1, 2021, and that the equipment was not in use in 2021 but was still held by Pina Colada on December 31, 2021.

Repeat parts (a) and (b), assuming instead that Pina Colada is a public company that prepares financial statements in accordance with IFRS.

Solutions

Expert Solution

As on 31 December 2020 & 2021 the asset cannot be classified as" held for sale" as it does not fulfill the requirement to classify it as held for sale and therefore will be shown as an asset in the financial statement of Pinacolada

Since the asset is not classified as held for sale depreciation should be charged as per IFRS 16.

As on December 2022 the Asset is held for sale and should be treated as per the requirements of IFRS 5 and no further depreciation be charged and therefore the value of asset as on

31-12-2020 is 8.01 million

31-12-2021 is 4.1775 million

31-12-2022 is (4.1775-1.3925*2/12)=3.945 million.

ekkarill92 answered 1 year ago

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