a) On 1/1/17 Okhardia Inc purchased a new machine with the following details Cos
ID: 2558471 • Letter: A
Question
a) On 1/1/17 Okhardia Inc purchased a new machine with the following details Cost of new machine Estimated useful life Estimated salvage value S 800,000 10 yearsS S40,000 The CFO of Okhardia Inc decided to use the straight-line method of depreciation for this asset. Provide the journal entry to record depreciation expense for 2017 and 2018 b) In 2019 the CFO of Okhardia re-assessed the useful life and expected salvage value of this asset. She now revised the estimated useful life and salvage value to: Estimated useful life ars Estimated salvage value S 30,000 Provide the journal entry to record depreciation expense in 2019. c) In 2020 there is a dramatic fall in the demand for the product this machine makes so the CFO of Okhardia Inc is concerned that this asset may be impaired On 7/1/20, before the annual depreciation charge for 2020 was recorded, she estimated that the asset would only have five years of remaining useful life and in this time period the expected net operating cash flows from using the asset would be 2021 2022 2023 2024 2025 S 125,000 S 100,000 S 80,000 S80,000 S 40,000 The CFO estimated that the PV of these future cash flows would be: S360,000 d) i) If this asset subsequently recovered in value in 2023, does Okhardia need to record and gain or loss. Assume Okhardia reports in US GAAP ii) What if Okhardia reports in IFRS?Explanation / Answer
(a) Depreciation Per Year = (Cost of MAchine - Salvge Value)/ No of Year
= 800000 - 40000 / 10
= 76000
2017: Depreciation A/c dr 76000
to Machine A/c 76000
2018: Depreciation A/c dr 76000
to Machine A/c 76000
(b) Machine Value as on 1/1/2019 = 800000 - 76000 - 76000 = 648000
New Expected Life = 9 years, New salvage value = 30000
Dep = 648000 - 30000/9 = 68667
2019: Depreciation A/c dr 68667
to Machine A/c 68667
(c) Carrying Value in 2020 = 648000 - 68667 = 579333
Expected Future CashFlow = 360000
Impairment Loss = Carrying amount - recoverable amount
Impairment Loss = 579333 - 360000 = 219333
Prov for impairment loss a/c dr 219333
to Machine a/c 219333
4. (i) If asset subsequently recovered in value in 2023, then company need to record and gain or loss as per US GAAP
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