Computing and Assessing Plant Asset Impairment Zeibart Company purchases equipme

Question

Computing and Assessing Plant Asset Impairment

Zeibart Company purchases equipment for $235,000 on July 1, 2012, with an estimated useful life of 10 years and expected salvage value of $28,000. Straight-line depreciation is used. On July 1, 2016, economic factors cause the market value of the equipment to decline to $97,500. On this date, Zeibart examines the equipment for impairment and estimates $127,500 in future cash inflows related to use of this equipment.

a. Is the equipment impaired at July 1, 2016?
AnswerYesNo

b. Compute the impairment loss (if any) as of 7/1/2016 as well as the depreciation expense for the 12 months from July 1, 2016 to July 1, 2017. Round calculations to the nearest dollar.
Using the financial statement effects template, show how those two entries affect Zeibart Company’s balance sheet and income statement.

Balance Sheet Transaction Cash Asset + Noncash Assets - Contra Assets = Liabilities + Contrib. Capital + Earned Capital b. Impairment charge $Answer + $Answer - $Answer = $Answer + $Answer + $Answer c. Depreciation expense Answer + Answer - Answer = Answer + Answer + Answer Income Statement
Revenue
-
Expenses
=
Net Income $Answer - $Answer = $Answer Answer - Answer = Answer

Explanation / Answer

A) Yes Asset is impaired as on 1st July,2016.

B)

Given, Asset purchased on 1st July 2012 235000 Salvage Value 28000 Life of Asset 10years Depreciation per year 20700 Vale of Asset as on 1st July, 2016 152200 Net Realisable Value of Asset 127500 Sale Value 127500 Or Market Value 97500 Whichever is Higher i.e. 127500 Impairment Loss 24700 Depreciation Value for 1st July2016 - 2017 16583.33

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