Question

ABC's balance sheet includes the following asset, at December 31, 2019 after annual depreciation has been recorded:

       Equipment......................................................... $95000

       Less: accumulated depreciation....................... (25000)

       Net Book value ................................................. $70000

After performing its annual review for impairment, ABC obtains the following data:

       Equipment’s value in use.................................. $58000

       Equipment’s fair value less disposal costs.......... 62000

The remaining useful life of the asset at January 1, 2020 is 5 years. ABC. applies straight-line depreciation to its equipment assets and the equipment has a $5000 residual value. ABC uses IFRS.

Required:

1. Determine the amount of impairment loss (using the rational entity impairment model).
2. Prepare the entry to record the impairment loss.
3. Prepare the journal entry to record the 2020 depreciation.
4. Assume the carrying value of the equipment, after recording 2020 depreciation, at December 31, 2020 is $50600 and that the carrying value of the equipment would have been $57000 if no impairment had been taken in 2019. The recoverable amount of the equipment at December 31, 2020 is $56000. Prepare the journal entry to record the impairment recovery for 2020.

Answer 1

a.)	Calculation of amount of Impairment loss:
	Recoverable amount = Higher of value in use or fair value less disposal costs
	= Higher of ( 58,000 or 62,000 )
	= $ 62,000
	Impairment loss = Carrying Amount - Recoverable amount
	= 70,000 - 62,000
	= $ 8,000
b.)	Journal Entry to record impairment loss of 2019:-
	Account titles	Debit	Credit
	Impairment loss	8,000
	Accumulated Impairment Loss		8,000
c.)	Journal Entry to record depreciation of 2020:-
	Account titles	Debit	Credit
	Depreciation	11,400
	Accumulated Depreciation		11,400
	( 62,000 - 5,000 ) / 5
d.)	Journal Entry to record impairment loss of 2020:-
	Account titles	Debit	Credit
	Impairment loss	1,000
	Accumulated Impairment Loss		1,000
	(57,000 - 56,000 )