At December 31, 2010, a company has a piece of equipment it acquired on January 1,...
At December 31, 2010, a company has a piece of equipment it acquired on January 1, 2007, with an initial scrap value of $0, which has significantly decreased in market value due to technological innovations in the industry in which the company operates. The equipment’s 10-year service life has a net carrying value of $60,000 ($100,000 cost less $40,000 of accumulated depreciation). The expected future undiscounted cash flows from the use of this equipment are $59,000. Additionally, the company expects to scrap the equipment in six years at the end of its service life, for $2,000.
– Is an impairment loss calculation required using IFRS?
Homework Answers
| Under IFRS, if the carrying value of an asset is higher than the fair value of | |
| that particular asset, we need to calculate the impairment loss on that | |
| asset to represent it at it's realizable value in the books. | |
| Fair value of the asset is determined as the total expected undiscounted | |
| future cash flow from the use of that asset. | |
| Original cost of the equipment | $100,000 |
| The carrying value of equipment at December 31,2010 | $60,000 |
| Computation revised carrying value and accumulated depreciation | |
| due to change in the estimate of useful life of the equipment | |
| Original cost of the equipment | $100,000 |
| Revised useful life of the equipment (in years) | 6 |
| Scrap Value | $2,000 |
| Depreciable value | $98,000 |
| Annual depreciation | $16,333 |
| Accumulated depreciation as on December 31,2010 | $65,332 |
| Carrying value of the equipment as per revised useful life | $34,668 |
| Carrying value of the equipment as per revised useful life | $34,668 |
| Fair value on the basis of future undiscounted cash flows | $59,000 |
| Since the carrying value of the asset is less than the fair value, there | |
| is no need to calculate the impairment loss under IFRS |
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