Problem 2 (20 Points) Raiders Company uses special strapping equipment in its pa

Question

Problem 2 (20 Points) Raiders Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $3,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of the equipment. Raiders' controller estimates that expected future net cash flows on the equipment will be $1,750,000 and that the fair value of the equipment is S1,6 intends to continue using the equipment, but it is estimated that the remaining useful life is Raiders uses straight-line depreciation. (You must show your computat 50,000. Raiders Instructions (a) Prepare the journal entry (if any) to record the impairment at December 31,2017. (b) Prepare any journal entries for the equipment at December 31, 2018·The fair value of the equipment at December 31, 2013, is estimated to be $1,725,000. c) Repeat the requirements for (a) and (b), assuming that Raiders intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018.

Explanation / Answer

(a).

Cost of Equipment as on january 2016:-                                                  $3000000

Less: Depreciation                                    $750000    

($3000000/8)x2                                                                

Carring value as on 31 December 2017:-                                                $2250000

Fair Value of Equipment as on 31 December 2017:- $1650000   

Impairement Loss:-                                                                                   $600000   

Journal Entry:-

Impairement Loss a/c                               Dr.                   $600000

            To Accumulated Depreciation                                             $600000

(b).

Cost of Equipment as on 1 january 2018:-                                          $1650000

Less: Depreciation($1650000/4)                                                         $412500    

Cost of equipment as on 31 December 2018                                      $1237500  

Journal Entry:-

Depreciation a/c                                        Dr.                          $412500

      To Accumulated Depreciation                                                      $412500

(c). If equipment is not disposed of on 31 december 2018 than recovery of impairment loss recorded.

Journal Entries:-

31/12/2017    Impairement Loss a/c               Dr.                     $600000

                                 To Accumulated Depreciation                         $600000

31/12/2013    Accumulated Depreciation    Dr. $100000                  

                             To Recovery of Impairment Loss                           $100000

                                    ($1750000-$1650000)

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