In: Accounting
Cougar Corp.'s balance sheet as of December 31, 2020 includes an item of equipment with an original cost of $95,000 which was purchased on January 1, 2017. The equipment has an economic life of 20 years. For Cougar, the useful life of the asset is 15 years and the residual value is expected to be $5,000.
Cougar determines that the asset’s value in use is $58,000. Based on market assessments, the fair value of the asset is $66,000 and if it were to be sold, Cougar would incur a commission cost of 5% as well as legal fees of $1,000. The future undiscounted cash flows that are expected to be generated from continuing to use this equipment total $70,000.
Instructions
Assuming Cougar uses IFRS, answer the following questions as of December 31, 2020:
a) Calculate the recoverable amount.
b) Calculate the impairment loss.
c) Prepare the entry to record the impairment loss.
Assuming Cougar uses ASPE, answer the following question as of December 31, 2020:
d) Prepare the entry to record the impairment loss using ASPE. Show your work. If no entry is required, explain why.
Answer | ||||||||||
a)Recoverable amount shall be higher of the following: | ||||||||||
*Fair Value less cost of disposal is 61,700 | ||||||||||
*Value in use is 58000 | ||||||||||
So Recoverable Amount is $ 58,000. | ||||||||||
Fair Value = Market Value less cost of sale | ||||||||||
66000 - (5% of 66000)- 1000 | ||||||||||
61700 | $ | |||||||||
Value in use = $ 58000 | ||||||||||
(Assumed after Discounted factor $ 70000 comes to $58000) | ||||||||||
b) Impared Loss = Carrying Amount - Recoverable Value | ||||||||||
Impared Loss = 71000-58000 | ||||||||||
Impared Loss = | 13000 | |||||||||
Carrying Amount = (95000 - (4*((95000-5000)/15)) | ||||||||||
71000 | $ | |||||||||
c) | ||||||||||
$ | $ | |||||||||
Impaired Loss A/c….......................Dr. | 13000 | |||||||||
To Equipment A/c | 13000 | |||||||||
(Being Impared loss provided) | ||||||||||
d) ASPE requires goodwill to be tested for impairment whenever events or changes in circumstances indicate | ||||||||||
As per ASPE Imparaired Loss = Carrying Amount - Fair Value | ||||||||||
71000 - 61700 | ||||||||||
9300 | $ |