Question

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 31, 2020, the equipment has a remaining useful life of 5 years. 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 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 eTextbook and Media List of Accounts Prepare the journal entry (if any) to record depreciation expense for 2021. (If no entry is required, select "No entry for the account titles and enter for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit e Textbook and Media List of Accounts

Answer 1

Ans:

Ans:

working note 1:

calculation of new impairment of assets:

Cost	10,980,000
Less: Accumulated depreciation	(1,220,000)
Current book value	9760,000
Less:(lower of expected future net cash flows and fair value)	(5,856,000)
loss on impairment	3,904,000

working note2:

calculation of new depreciation:

new carrying amount =$5,856,000

remaining useful life = 5 years.

new depreciation amount =$1,171,200

now, the required solution is presented below:

a.

Dec 31,2020	Loss on Impairment	3,904,000
	........To Accumulated Depreciation - Equipment		3,904,000
	(being loss on impairment of assets recorded)

b.

Dec 31,2021	Depreciation expense a/c	=$1,171,200
	..............To Accumulated Depreciation - Equipment		=$1,171,200
	(being depreciation calculated on new carrying amount of 5,472,000)

c.

In case of increase in fair value there will be no entry recorded.

This is because increase in value of impaired asset is recognised only on sale of asset.