In: Accounting
Hach Co has recorded depreciation on its equipment, but believes it may be impaired due to technological obsolescence. The net book value of machinery is $35,000 (cost: $52,500; Accumulated depreciation: $17,500). Forecasted annual future cash flows for the machinery are $6,000 for 6 years with no residual value. The company uses a discount rate of 4%. The fair value of the asset is $29,000, and it would cost $1,000 to sell. Depreciation has already been taken in 2020.
Instructions:
(a) Calculate and journalize impairment (if necessary) using:
(i) the rational entity impairment model
(ii) the cost recovery model
(b) Calculate depreciation expense for 2021 under the double declining balance method (remaining useful life is 6 years at beginning of 2021) assuming Hach reports under IFRS.