Boston Inc. bought a new snow-melting machine on March 1, 2013 for $100,000. Bos

Question

Boston Inc. bought a new snow-melting machine on March 1, 2013 for $100,000. Boston expected to use the snow-melter for five years, and expected it to be worth $10,000 as salvage at the end of the five years. However, there was so much snow to melt that the company is afraid that most of the snow-melter’s services are used up by March 1, 2015. Boston has been using straight-line depreciation, and is a March 1 fiscal year end company. As of March 1, 2015, the bookkeeper estimates that the snow-melter will generate future cashflows of $50,000, or could be sold for $45,000. Give the journal entries to record the impairment loss and annual depreciation for 2015.

Explanation / Answer

Solution: Calculation of impairment loss

Accumulated Depreciation= [(100000 - 10000)/5]×2

= $18,000

Carrying amount= 100000 - 36000

= $64,000

Recoverable amount will be higher of the two

i.e. 45000 or 50000 i.e. $50,000

Therefore, Impairment loss= carrying amount - Recoverable amount

= 64000 - 50000= $14,000

Annual Depreciation = [(100000 - 10000)/5]

= $18,000

In the books of Boston Inc.

Journal

Particulars Amount($) Debit Amount($) Credit Impairment loss A/C 14000 Accumulated Impairment loss A/C 14000 Depreciation on snow-melting machine A/C 18000 Snow melting machine A/C 18000

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.