Question

Current Attempt in Progress Presented below is information related to equipment owned by Blue Company at December 31, 2020. Cost Accumulated depreciation to date Expected future net cash flows Fair value $10,980,000 1,220,000 8,540,000 5,856,000 Blue intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $24,400. As of December 3 equipment has a remaining useful life of 5 years. la) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2020. (If no entry is required, select "No e the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do indent manually.) Date Account Titles and Explanation Debit Credit Dec. 31

Answer 1

An asset is said to be impaired if the recoverable amount of the asset is less than the carrying amount. Recoverable amount is the higher of assets fair value or Value in use (Value in use refers to the present value of future cash flows). Fair Value Value in Use (PV of estimated future cash flows Cost of disposal) Recoverable amount higher of Fair value or Value in use Carrying amount = Cost - Accumulated Depreciation $ 5,856,000 8,515,600 ($ 8,540,000 $ 24,400) 8,515,600 (Higher of $5,856,000 or $ 8,515,000) 9,760,000 ($10,980,000- $1,220,000) $ - $ As the recoverable amount of the asset ($ 8,515,600) is lesser than the Carrying amount ($ 9,760,000). The asset is impaired and impairment loss must be recognized Impairment Loss Carrying amount Recoverable amount $ 1,244,400 ($9,760,000- $ 8,515,600) - Journal Entry Debit Credit Impairment Loss Equipment 1,244,400 $ 1,244,400