Question

The information that follows relates to equipment owned by Pearl Limited at December 31, 2020: Cost $8,280,000 Accumulated depreciation to date 920,000 Expected future net cash flows (undiscounted) 6,440,000 Expected future net cash flows (discounted, value in use) 5,842,000 Fair value 5,704,000 Costs to sell (costs of disposal) 46,000 At December 31, 2020, Pearl 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 $46,000.

Assume that Pearl 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 $5.98 million. Prepare the journal entry, if any, to record the increase in fair value. It is expected that the costs of disposal will total $46,000. 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 Pearl 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

Answer 1

1. Journal entry at December 31, 2020, to record asset impairment :

Date	Particulars	Debit	Credit
31.12.2020	Loss on impairment of assets	$15,18,000
	To Accumulated depreciation		$15,18,000
	(Being impaiment of assets recorded)

Working Note :

Impairment of assets = Carrying amount - Recoverable amount

Carrying amount = Cost - Accumulated depreciation = $(82,80,000 - 9,20,000) = $73,60,000

Recoverable amount = Higher of Net Selling price and value in use =  $58,42,000

Value in use = $58,42,000

Net selling price = Fair value of assets - Cost of disposal = $(57,04,000 - 46,000) = $56,58000

Therefore, Impairment of assets = $(73,60,000 - 58,42,000) = $15,18,000

2. Journal entry  to record depreciation expense for 2021 :

Date	Particulars	Debit	Credit
2021	Depreciation Expense A/c
	To Accumulated depreciation A/c
	(Being impaiment of assets recorded)

Working note :

Particulars	Amount in $
Cost	8,280,000
Less:Accumulated depreciation to date	920,000
Less: Loss on impairment	15,18,000
Beginning written down value as on 2021	58,42,000
Useful life	Not given in the question
Depreciation expense = (Written down value / useful life)

3. Journal entryto record an increase in the fair value :

Date	Particulars	Debit	Credit
31.12.2021	Asset A/c	$1,32,000
	To Revaluation surplus A/c		$1,32,000
	(Being increase in fair value recorded)

Explanation:

Increase in the value of the asset = $(5,98,0000-58,42,000) = $1,32,000

A revaluation that increases or decreases an asset’s value can be accounted for with a journal entry. An increase in the asset’s value should not be reported on the income statement; instead an equity account is credited called “Revaluation Surplus. ” Revaluation surplus is reported in the other comprehensive income sub-section of the owner’s equity section in the balance sheet. The revaluation surplus account accounts for increases in asset value, and it also offsets any downward revisions, such as an impairment loss, in asset value. When the credit balance in the revaluation surplus account zeros out, an impairment loss is reported on the income statement.