Equipment cost $ 50,000 Accumulated depreciation 20,000 Annual future cash flows
ID: 2482828 • Letter: E
Question
Equipment cost $ 50,000 Accumulated depreciation 20,000 Annual future cash flows 5,000 Remaining life 10 Discount rate 10% 1. Recoverability test Net book value of equipment Sum of future cash flows Is there an imapairment? 2. If there is an impairment calculate the amount Net book value of equipment PV of future cash flows Amount of the impairment Journal Entry: Equipment cost $ 50,000 Accumulated depreciation 20,000 Annual future cash flows 5,000 Remaining life 10 Discount rate 10% 1. Recoverability test Net book value of equipment Sum of future cash flows Is there an imapairment? 2. If there is an impairment calculate the amount Net book value of equipment PV of future cash flows Amount of the impairment Journal Entry:Explanation / Answer
Solution - Recoverability test compares the sum of the expected future cash flows from the asset (undiscounted) to the carrying amount. If the cash flows are less than the carrying amount, the asset has been impaired. The impairment loss is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of assets is measured by their market value if an active market for them exists. If no market price is available, the present value of the expected future net cash flows from the asset may be used
There is No Impairment however if there would have been any the Journal entry would have been
Particular A Cost 50000 B Accumulated depreciation to date 20000 C Expected future net cash flows 5000 D remaining useful life ( Years) 10 E Carrying Amount = Original Cost - depreciation ( A-B) 30000 Y Recoverable Amount /Expected future net cash flows ) = C x D 50000 So No Impairment Loss as Y > XRelated Questions
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