Question

Presented below is information related to equipment owned by ALALI Company at December 31, 2010.

                        Cost                                                        SAR 7,000,000

                        Accumulated depreciation to date                  1,500,000

                        Value-in-use                                                  5,000,000

                        Fair value less cost of disposal                       4,400,000

Assume that ALALI will continue to use this asset in the future. As of December 31, 2010, the equipment has a remaining useful of 4 years.

Instructions

Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2010.

Prepare the journal entry to record depreciation expense for 2011.

The recoverable amount of the equipment at December 31, 2011, is SAR 5,250,000. Prepare the journal entry (if any) necessary to record this increase.

Answer 1

1	Date	Accounts Titles & explanation	Debit	Credit
	Dec-31	Loss on Impairment	1,100,000
		Accumulated Depreciation—Equipment		1,100,000
	Working
		Cost	7,000,000
		Accumulated depreciation	1,500,000
		Carrying amount	5,500,000
		Fair value	4,400,000
		Loss on impairment	1,100,000
2	Dec-31	Depreciation Expense	1,100,000
		Accumulated Depreciation—Equipment		1,100,000
	Working
		New carrying amount	4,400,000
		Useful life	4 years
		Depreciation per year	1,100,000
3	No entry necessary. Restoration of any impairment loss is not permitted
	if the asset is held for use.