Presented below is information related to equipment owned by Monty Company at De
ID: 2557386 • Letter: P
Question
Presented below is information related to equipment owned by Monty 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 Monty intends to dispose of the equipment in the coming year.
It is expected that the cost of disposal will be $23,200. As of December 31, 2017, the equipment has a remaining useful life of 5 years.
A. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017.
B. The asset was not sold by December 31, 2018. The fair value of the equipment on that date is $6,148,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $23,200.
Explanation / Answer
Book value of asset on 31st Dec'17=10440000-1160000=$9,280,000
Under US GAAP asset is impaired as book value is less than expected future net cash flows of $8,120,000
Impairment loss= Book value-fair value
=9280000-5568000=$3,712,000
A)
B) Under USGAAP, Reversal of impairment loss is prohibited so no journal entry is required.
Debit Credit 31st Dec'17 Loss on impairment $ 3,712,000 Accumulated Depreciation $ 1,160,000 Equipment $ 4,872,000