Question

A. A company acquired a new high-tech printing press on January 1, 2016, for $90,000. At that time, the company estimated the press would have a six-year life and salvage value of $6,000. The company uses the straight-line depreciation method for all its equipment. In December 2017, a newer high-tech printing press is introduced in the market. The company controller is concerned that the value of the press may be impaired. The controller has provided you with the following data as of December 2017 and asked you to determine if there is any impairment using US GAAP or IFRS. If there is any impairment, please provide the journal entries. Additionally, as part of the 2018 budget process, the controller has asked you to calculate depreciation expense of the press using both US GAAP and IFRS. (6)

Scrap value should be reduced to $4,000.

Expected future undiscounted cash flows from operating the press are $51,000.

Discounted net present value of expected cash flows from the press is $49,000.

Fair value of the press at December 31, 2017, is $45,000 and selling costs are minimal.

B. Use the same facts as problem A above, except assume that at December 31, 2018, the controller asks what, if any, impairment reserve can be reversed using US GAAP and IFRS, because the controller concludes the press is not impaired at December 31, 2018. The controller has told you to assume the scrap value should remain $4,000.

Answer 1

A	Determination of impairment Using US GAAP
	Step 1 if carrying value exceeds undiscounted future cash flow
	Cost of Press	$90,000
	Less: Depreciation for 2 years[ (90000-6000/6)x2]	$28,000
	Carrying value of the press	$62,000
	Undiscounted future cash flow	$51,000
	Step 2
	Impairment loss
	Carrying value of the press	$62,000
	Less: Present value of expected cash flows	$49,000
	Impairment loss	$13,000
	Determination of impairment Using IFRS
	Carrying value of the press	$62,000
	Press recoverable amount
	Higher of:
	Fair value - selling costs (45000-4000)	$41,000
	Discounted future cash flow expected	$49,000
	Impairment loss (62000-49000)	$13,000
	Journal entry for impairment
	Loss on impairment	$13,000
	Press		$13,000
	Calculation of Depreciation expense for 2018
	Cost of press	$90,000
	Less: Accumulated depreciation for 2 years	$28,000
	Impairment loss	$13,000
	Carrying value	$49,000
	Less: Scrap value	$4,000
		$45,000
	Annual depreciation (45000/4 remaining useful life)	$11,250
	Depreciation expense for 2018	$11,250
B	Under US GAAP Impairment loss is not allowed to be reversed
	Under IFRS, impairment loss can be reversed later, if assets value recovers
	Press	$13,000
	Revaluation Surplus		$13,000