(For W8 and W9) On January 2, 2010, WLP Corp purchased equipment that produced a
ID: 2600397 • Letter: #
Question
(For W8 and W9) On January 2, 2010, WLP Corp purchased equipment that produced a key product for smartphones. That equipment costed $60,000, and its estimated useful life was five years, and after which it was expected to be sold for $5,000. WLP Corp uses straight-line depreciation. At the end of 2012, an accountant in WLP Corp is studying the impairment of the equipment. The demand for the product has declined substantially since the introduction of cheaper imports. She gathers the following information about the equipment: Carrying amount Undiscounted expected future cash flows Present value of expected future cash flows Fair value if sold Cost to sell 27,000 $27,500 $24,000 $25,500 $3,000 W8. Under IFRS, is the equipment impaired? If, so, determine the amount of the gain or loss on the asset impairment. (Clearly indicate gain or loss and the amount.) w9. U nder U.S. GAAP, is the equipment impaired? If,so, determine the amount of the gain or loss on the asset impairment. (Clearly indicate gain or loss and the amount.)Explanation / Answer
W8) As per IFRS 36, the equipment is said to be impaired when the carrying amount is more than the recoverable amount.
Impairment loss is recognised if carrying amount is more than the recoverable amount.
Recoverable amount is higher of:-
1) net selling price
2) Value in use
Net selling price:- Rs. 25500-3000= Rs. 22500
Value in use= Present value of future cash flows+ residual value
= 24000+5000= Rs. 29000
Therefore, recoverable amount= Rs.29000
- Impairment loss:- carrying amount - Recoverable amount
=27000-29000 = (2000)
W9) As per US GAAP, the asset is said to be impaired when at each balance sheet date there is any indication of impairment of an asset.
Some of the indications are:- 1) Asset market value has declined.
2) Due to change in technology ,market conditions , legal regulations, there is an adverse effect on the enterprise.
3) Interest rate in the market has increased or a general expectations about return on investment has increased.
- Impairment loss :- Carrying amount- Recoverable amount
Carrying amount = Historical cost - depreciation = 60000- 22000= Rs. 38000
Recoverable amt. =RS.29000 ( as calculated)
Therefore, impairment loss- 38000-29000 =Rs.9000
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