Respuesta :
Answer:Please see answer in explanation column
Explanation:
1.To record the impairment loss of the asset at December 31, 2019.
Date Account Title and explanation Debit Credit
Dec 31, 2019 Loss on Impairment $ 2,000,000
To Accumulated Deprecation - equipment $2,000,000
Calculation
Cost $16,000,000
Less: Accumulated depreciation to date -$8,000,000
Carrying amount $8,000,000
Less: Fair value -$6,000,000
Loss on impairment $2,000,000
Here, The impairment loss is being debited since it increased the loss the accumulated depreciation was credited for reducing the value of asset.
2
To record the depreciation expense
Date Account Title and explanation Debit Credit
Dec 31, 2020 Depreciation expense $1,200,000
To Accumulated depreciation - equipment $1,200,000
Calculation:
Fair value =6,000,000
= $6,000,000 ÷ 5 years
= $1,200,000
c. No journal entry for increase in fair value
Answer:
A. Dr Impairment loss (p/l) $1,000,000
Cr Accum Depreciation $1,000,000
Being entries to record the impairment of the asset
B. Dr Depreciation (p/l) $1,400,000
Cr Accum Depreciation $1,400,000
Being entries to record the depreciation expense of the asset
C. If the fair price remains $6,000,000, the recoverable amount will still be $7,000,000 hence no entries are required.
Explanation:
An asset is said to be impaired when the carrying amount is higher than the recoverable amount. The recoverable amount is the higher of the fair value and the value in use which is the present value of the future cash flow from the asset.
The carrying amount or book value
= Cost less accumulated depreciation
= $16,000,000 - $8,000,000
= $8,000,000
Other information given
Expected future net cash flows 7,000,000
Fair Value 6,000,000
The recoverable amount
= $7,000,000 (being higher than the fair value)
The recoverable amount is lower than the carrying amount as such the asset is impaired.
Impairment = $8,000,000 - $7,000,000
= $1,000,000
To record the impairment
Dr Impairment loss (p/l) $1,000,000
Cr Accum Depreciation $1,000,000
Being entries to record the impairment of the asset
Depreciation is the allocation of the cost of asset to p/l
Depreciation = carrying amount/useful life
= $7,000,000/5
=$1,400,000
Dr Depreciation (p/l) $1,400,000
Cr Accum Depreciation $1,400,000
Being entries to record the depreciation expense of the asset
If the fair price remains $6,000,000, the recoverable amount will still be $7,000,000 hence no entries are required.
