Homework Answers
Impairment of Asset
Impairment of Asset means the reduction in recoverable amount of fixed assets due to change in economic or legal circumstances.
The assets are impaired when the carrying value of asset is exceeds its recoverable value.
Affect of Impairment of Asset
- Reduction in Value of Asset i.e. Balance Sheet asset decreased
- Impairment loss is recognized in Income Statement
Recoverable amount of asset as on Dec 31, 2018 = $97,530
Carrying Value of Asset as on Dec 31, 2018 = Cost of Asset – Accumulated Depreciation from Jan 1, 2015 to Dec 31, 2018 i.e. 4 years
Cost of Asset = $182,680
Residual Value = $10,720
Estimated Useful life = 10
Annual Depreciation using straight line method = (Cost of Asset – Residual Value) / Estimated Useful life
= ($182,680 – 10,720) / 10
= $17,196
Accumulated Depreciation for 4 years = $17,196 * 4 = $68,784
Carrying Value of Asset as on Dec 31, 2018 = Cost of Asset $182,680 – Accumulated Depreciation $68,784
= $113,896
Value of Asset = Recoverable Amount = $97,530
Impairment Loss = Carrying Value $113,896 – Recoverable Value $97,530 = $16,366
Annual Depreciation = $17,196
Carrying Value of Asset = $113,896
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