Question

Identifying and Recording Impairment Loss on Plant Asset Three cases are provided below concerning a plant asset currently used in operations. Case Carrying Value Recoverable Cost Fair Value A $24,000 $36,000 $27,000 27,000 39,000 24,000 36,000 24,000 18,000 B с C Required a. Which case(s), if any, requires an impairment loss to be recognized, and for what amount? Assume that indicators of impairment are present in all cases. Note: If the asset is not impaired, enter a zero (or leave blank) for the loss. Note: Do not use negative signs with your answers. Impairment Loss Case A $ 12,000 x Case B $ 12 x Case C $ 12 X b. Record the entry for the impairment loss on the case(s) identified in part a (if any). Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Account Name Dr. Cr. Loss on Impairment 12,000 x Property 12,000 x 0 Check

Answer 1

a)

	impairment loss
case A	0
case B	0
case C	12000

an impairment loss occurs when the carrying amount of an asset or cash-generating unit exceeds its recoverable amount.

for case A

carrying value is $24000 and recoverable amount is $36000. so there is no impairment loss as the recoverable amount is greater than the carrying value

for case B

carrying value is $27000 and recoverable amount is $39000.so there is no impairment loss as the recoverable amount is greater than the carrying value

for case C

carrying value is $36000 and recoverable amount is $240000. there is an impairment loss as the carrying value of plant is greater than its recoverable amount.

impairment loss=$24000-$36000=-$12000

b)

journal entry:

accounts title	debit	credit
loss on impairment	12000
plant asset		12000

plant asset is credited with the impairment loss amount because the value of asset is decreased.asset account should be credited when it decreases.impairment loss is an expense account which should be debited when it increases