Presented below is information related to equipment owned by Swiss Company at De

Question

Presented below is information related to equipment owned by Swiss Company at December 31, 2013:

Cost

$9,000,000

Acc. depreciation to date

1,000,000

Expected undiscounted future cash flows

7,000,000

Fair Value

4,800,000

Assume that Swiss Company will continue to use the asset in the future. As of
December 31, 2013, the equipment has a remaining useful life of 4 years and Swiss
uses the straight line method of depreciation.

            REQUIRED:

1) Prepare the journal entry to record the impairment at December 31, 2013.

2) Prepare the journal entry to record depreciation expense for 2014.

3) Prepare the journal entry (if any) necessary to record the increase in fair value to $5,100,000 as of December 31, 2014.

4) Would your answer to (3) be different if Swiss intended to dispose of the equipment rather than use it in the future?

Cost

$9,000,000

Acc. depreciation to date

1,000,000

Expected undiscounted future cash flows

7,000,000

Fair Value

4,800,000

Explanation / Answer

Carrying Amount Cost $9,000,000 Acc. depreciation to date 1,000,000 Carrying Amount 8,000,000 Recoverable amount Expected undiscounted future cash flows 7,000,000 Fair Value 4,800,000 Recoverable amount(lowerof the two) 4,800,000 Impairment Loss Carrying Amount 8,000,000 Less Recoverable amount 4,800,000 Impairment Loss 3200000 JE P & LA /c 3200000 To Provision for Impairment Loss 3200000 Revised Carrying Amount = ($8000000-$3200000) = $4800000 Depreciation = Revised Carrying Amt/useful life =$4800000/4 $1,200,000 JE Depreciation A/c $1,200,000 To Fixed Asset $1,200,000

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