Exercise 11-16 Account Titles and Explanation Debit Credit Account Titles and Ex

Question

Exercise 11-16

Account Titles and Explanation

Debit

Credit

Account Titles and Explanation

Debit

Credit

Account Titles and Explanation

Debit

Credit

Exercise 11-16

Presented below is information related to equipment owned by Suarez Company at December 31, 2014.
Cost $ 9,000,000 Accumulated depreciation to date 1,000,000 Expected future net cash flows 7,000,000 Fair value 4,800,000
Assume that Suarez will continue to use this asset in the future. As of December 31, 2014, the equipment has a remaining useful life of 4 years.

Explanation / Answer

Recoverable value is the higher of Future Value and Expected future net cash flow

Recoverable value = $7,000,000

Carrying value = $ 9,000,000 - $ 1,000,000 = $ 8,000,000

Impairment = $ 9,000,000 - $ 8,000,000 = $ 1,000,000

Journal Entry:

New Value of Asset = $7,000,000

Annual Depreciation = $7,000,000 / 4 = $1,750,000

Journal entry on 31 Dec 2015 for Depreciation.

Carrying value of the asset as on 31 Dec. 2015 = 7,000,000 - 1,750,000 = $5,250,000

Fair Value = $5,100,000

Impairment Loss= $5,100,000 - $5,100,000

Date Account Title Debit Credit Dec31 Impairment Loss 1,000,000 Accumulated Impairment Loss 1,000,000

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