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24 November, 13:21

Roland Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $10,000,000 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 Roland's equipment. Roland's controller estimates that expected future net cash flows on the equipment will be $6,300,000 and that the fair value of the equipment is $5,600,000. Roland intends to continue using the equipmen

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  1. 24 November, 16:51
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    Consider the following calculations

    Explanation:

    Answer: (a) Carrying value of asset: $10,000,000 - $2,500,000 = $7,500,000.

    ($10,000,000 : 8) x 2 = $2,500,000

    Future cash flows $6,300,000

    Carrying value $7,500,000

    Impairment entry:

    Loss on Impairment A/C Dr. $1,900,000

    To Accumulated Depreciation A/C $ 1,900,000

    (7,500,000 - 5,600,000 = 1,900,000)

    (b) Depreciation Expense A/C Dr. $ 1,400,000

    To Accumulated Depreciation A/C $ 1,400,000

    ($5600000/4=$1400000)

    (c) No depreciation is recorded on impaired assets to be disposed of.

    Recovery of impairment losses are recorded.

    Loss on Impairment A/c Dr. $1,900,000

    To Accumulated Depreciation A/C $ 1,900,000

    12/31/2015 Accumulated Depreciation A/C Dr. $ 300,000

    To Recovery of Impairment Loss A/C $ 300,000
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