Bramble Company uses special strapping equipment in its packaging business. The

Question

Bramble Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $12,400,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Bramble’s equipment. Bramble’s controller estimates that expected future net cash flows on the equipment will be $7,812,000 and that the fair value of the equipment is $6,944,000. Bramble intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Bramble uses straight-line depreciation.

Account Titles and Explanation

Debit

Credit

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Account Titles and Explanation

Debit

Credit

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Date

Account Titles and Explanation

Debit

Credit

12/31/17

12/31/18

Bramble Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $12,400,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Bramble’s equipment. Bramble’s controller estimates that expected future net cash flows on the equipment will be $7,812,000 and that the fair value of the equipment is $6,944,000. Bramble intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Bramble uses straight-line depreciation.

Explanation / Answer

(a)                                                          Debit                 credit
Dec 31 Loss in impairment               $2,356,000    
               Accumulated depreciation                     $2,356,000
(Loss on impairment $93,00,000 - 6,944,000)

Note- Carrying value of asset = $12,400,000-31,00,000*
                                                      = $93,00,000
*($12,400,000 /8) × 2= 31,00,000


(b)                                                        Debit               credit
Dec 31 Depreciation expenses        $1,829,000
                Accumulated depreciation                    $1,829,000
(Depreciation = 7,316,000/4)


(c)                                                     Debit               Credit
    
Loss in impairment                       $2,356,000    
         Accumulated depreciation                        $2,356,000

Accumulated depreciation          $372,000
    Recovery of impairment loss                         $372,000
($7,316,000 - 6,944,000)

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