Question

Exercise 11-16 Presented below is information related to equipment owned by Pearl Company at December 31, 2017. Cost $10,440,000 Accumulated depreciation to date 1,160,000 Expected future net cash flows 8,120,000 Fair value 5,568,000 Assume that Pearl will continue to use this asset in the future. As of December 31, 2017, 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, 2017. (If no entry is required, select "No entry" for the account titles and enter 0 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 Loss on Impairment 3712000 Accumulated Depreciation-Equipment 3712000 SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare the journal entry to record depreciation expense for 2018. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit No Entry 0 No Entry 0 SHOW LIST OF ACCOUNTS LINK TO TEXT The fair value of the equipment at December 31, 2018, is $5,916,000. Prepare the journal entry (if any) necessary to record this increase in fair value. (If no entry is required, select "No entry" for the account titles and enter 0 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

Answer 1

A	Determination of impairment Using IFRS
	Cost of Equipment	$10,440,000
	Less: Accumulated Depreciation	$1,160,000
	Carrying value of the equipment	$9,280,000
	Equipment recoverable amount
	Higher of:
	Fair value	$5,568,000
	Expected future net cash flow	$8,120,000
	Impairment loss (9280000-8120000)	$1,160,000
	Journal entry for impairment
	Loss on impairment	$1,160,000
	Equipment		$1,160,000
	Calculation of Depreciation expense for 2018
	Cost of Equipment	$10,440,000
	Less: Accumulated depreciation	$1,160,000
	Impairment loss	$1,160,000
	Carrying value	$8,120,000
	Annual depreciation (8120000/5 remaining useful life)	$1,624,000
	Depreciation expense for 2018
	Depreciation expense - equipment	$1,624,000
	Accumulated Depreciation-Equipment		$1,624,000
	Prepare the journal entry (if any) necessary to record this increase in fair value
	No entry required