CONT 3008 Ex 4-Impairment. (9pts) Dolphin Company uses special strapping equipme

Question

CONT 3008 Ex 4-Impairment. (9pts) Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2013 for $8,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2014, new technology the obsolescence of Dolphin's equipment. Dolphin's controller estimates that e net cash fows on the equipment will be $5,000,000 and that the fair value of the equipment is $4,400,000. Dolphin intends to continue using the equipment, but it is estimated remaining useful life is 4 years. Dolphin uses straight-line depreciation was introduced that would accelerate xpected future that the Instructions (a) What is the carrying value of the asset as of 12/31/14? S at December 31, 2014. (c) Prepare any journal entries for the equipment at December 31, 2015. The fair value of the equipment at December 31, 2015, is estimated to be $4,600,000. (d) Repeat the requirements for (a) and (b), assuming that Dolphin intends to dispose of the equipment and that it has not been disposed of as of December 31, 2015.

Explanation / Answer

Computation of Carrying Value of Asset on December 31,2014 Date of Purchae Jan-13 Purchase costs (a) $8,000,000 Estimated useful life (Yrs) 8 Depreciation per annum(as per SLM) $1,000,000 Depreciation for 2 Year (b) $2,000,000 Carrying Value of Asset on Dec31,2016 (a-b) $6,000,000 S.No. Date Particular Debit Credit b. 31/12/2014 Loss on Impairment $1,600,000 Accumulated Depreciation $1,600,000 ( To Record impairment as on 31, Dec14) (Carryin Value(60,00,000-Fair Value (4400000) C. 31/12/2015 Depreciation Expense(4400000/4) $1,100,000 Accumulated Depreciation $1,100,000 To Record the depreciation Expenseon 31,Dec15 31/12/2015 Accumulated Depreciation $200,000 Recovery of Impairment Loss $200,000 d. 31/12/0214 Loss on Impairment $1,600,000 Accumulated Depreciation $1,600,000 ( To Record impairment as on 31, Dec14) 31/12/2015 Accumulated Depreciation $200,000 Recovery of Impairment Loss $200,000 To Record increase in Fair Value of Asset

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