Question

Use the following information for questions 4 and 5. On January 1, 2015, Fredrichs Inc, purchased equipment with a cost of $3,060,000, a useful life! of 10 years and residual value of $60,000, The company uses straight-line depreciation. At December 31, 2016, the company determines that impairment indicators are present. The fair value less cost to sell the asset is estimated to be $2,200,000. The asset's value-in-use is estimated to be $2,165,000. There is no change in the annet's useful life or salvage value 4. The 2015 income statement will report Loss on Impairment of a $260,000 (b) $560,000 c. $305,000 d. $460,000 5. What is the 2017 depreciation expense for the equipment? a $275,000 b, $236.364. C. $255,000 d. $244.444

Answer 1

Question 4 (Option A) Impairment loss is decrease in either " fair market value of an asset in market" or "future cash flows which asset can generate (Value in use)" So impairment loss can be caluclated through the following equation Impairment loss = Recoverable amount - Net carrying amount Recoverable amount is highest of the following "Fair market value less cost to sell asset" "Value in use" Recoverable amount Fair market value less cost to sell asset Value in use Higher amount is $ $ $ 2.200,000 2.165,000 2,200,000 In the given case Asset cost Residual value Life of an asset $ 3,060,000 $ 60,000 10 years Straight line method depreciation = (Asset cost - Residual value/Life of an asset = ($ 3,060,000 - $ 60,000)/10 Annual depreciation $ 300,000 Less: Asset cost Accumulated depreciation for 2 years (2015,2016) Net carrying value as on 31/12/2016 (Before impairment) $ $ $ 3,060,000 600,000 2,460,000 Impairment loss =Recoverable amount - Net carrying amount =$ 2200000 - $ 2460000 $ (260,000) (1-2)

Question no-5 Option A Less: Less: Asset cost Accumulated depreciation for 2 years (2015,2016) Impairment loss Net carrying value as on 31/12/2016 (after impairment) 3,060,000 600,000 260,000 2,200,000 $ Depreciation for 2017 Net carrying value / Remaining life of an asset = $ 2,200,000 / 8 years Depreciation expense 2017 $ 275,000