Question

Presented below is information related to equipment owned by Sheffield Company at December 31, 2020.

Cost		$10,530,000
Accumulated depreciation to date		1,170,000
Expected future net cash flows		8,190,000
Fair value		5,616,000

Assume that Sheffield will continue to use this asset in the future. As of December 31, 2020, the equipment has a remaining useful life of 4 years.

Partially correct answer iconYour answer is partially correct.

Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2020. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	enter an account title to record the transaction on December 31, 2017	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on December 31, 2017	enter a debit amount	enter a credit amount

Prepare the journal entry to record depreciation expense for 2021. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

When the fair value of long-term asset falls below it carrying amount, impairment loss shall be recognized provided the difference is not expected to be recovered. Impairment loss shall be recognized and accrued to obtain the assets revaluation.

Impairment loss = Book value of asset – fair value of asset

Date	Particulars	Debit ($)	Credit ($)
Dec 31,2020	Loss on impairment	3,744,000
	Accumulated depreciation		3,744,000
	(to record impairment loss)
Dec 31,2020	Depreciation expenses	1,404,000
	Accumulated depreciation		1,404,000
	( to record depreciation expense)

Working notes:

Book value of asset = 10,530,000 – 1170,000 = $ 9,360,000

Fair value of asset = 5,616,000

Impairment loss = 9,360,000 – 5,616,000 = $ 3,744,000

Computation of depreciation expense:

Carrying value = 5,616,000

Remaining useful life = 4 years

Depreciation = 5,616,000 / 4 = $ 1,404,000

kindly upvote