Impairments Case 1 Discount rate 10 Solution 1 Compute the carrying amount CA

# Impairments case 1 discount rate 10 solution 1

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Impairments Case 1: Discount rate = 10% Solution: 1. Compute the carrying amount (CA) Accumulated Depreciation = (500,000 - 50,000)/5 * 2 = 180,000 Book Value = 500,000 - 180,000 = 320,000 2. Compute the Recoverable Amount (RA): Higher of Fair Value Less To Sell = 300,000 - 25,000 = 275,000 Value-in-Use = 120,000 * PV factor (i=10%,n=3) = 120,000 * 2.4869 = 298,428 3. Compare CA and RA RA = 298,428 > CA = 320,000, impairment loss = 21,572

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Impairments Case 2: Discount rate = 10% Solution: 4. Journal Entry on December 31, 2018 5. Journal Entry on December 31, 2019, etc. Depreciation Expense = 298,428 / 3 = 99,476 Depreciation Expense Accumulated Depreciation 90,000 90,000 Impairment Loss Accumulated Depreciation 21,572 21,572
Reversal of Impairment Loss The recoverable amount becomes the basis of the impaired asset. If a review in a future year indicates that the asset is no longer impaired, the loss recognized may be reversed. The amount of the recovery of loss is limited to the carrying amount that would result if the impairment had not occurred.

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Impairment Reversal Case 2: Discount Rate = 10% On December 31, 2020, Redmart determines that the recoverable amount becomes \$150,000. Year Depreciable Base Depreciation Rate Depreciation Expense Ending BV if no impairment Updated Ending BV Recoverable Amount 1 450,000 20% 90,000 410,000 2 450,000 20% 90,000 320,000 3 4 5
Disposal of Impaired Asset Impaired assets held for disposal are to be reported at the lower-of-cost-or-net realizable value (fair value less costs to sell) Net realizable value better measures the net cash flows that it will receive from these assets. Assets held for disposal are not depreciated or amortized. Each period the asset is held, the company revalues it and reports it at the lower-of-cost-or-net realizable value. Assets held for disposal can be written up or down in the future They are like inventory Carrying amount after the write-up cannot exceed the carrying amount of the asset before the impairment.

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Today’s Topic Depreciation Impairments Depletion Revaluation

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Depletion Natural resources can be divided into two categories: 1. Biological assets (timberlands) IAS 41 Agriculture sets out the accounting for agricultural activity – the transformation of biological assets (living plants and animals) into agricultural produce. The standard generally requires biological assets to be measured at fair value less costs to sell. 2. Mineral resources (oil, gas, and mineral mining). Complete removal (consumption) of the asset. Replacement of the asset only by an act of nature. Depletion is the process of allocating the cost of mineral resources.
How do we record the extraction and sale of a natural resource? Inventory xx Accumulated Depletion or Natural Resource xx (Cost – Residual Value) Actual Depletion = Depletion Estimate Total Depletion x Natural Resources Accounts Receivable or Cash xx Revenue xx When the natural resources are mined or harvested When the mined or harvested natural resource is sold Cost of Goods Sold xx Inventory xx Activity Method

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On January 1, 2010, NUS Corp acquires land in the northwest for \$450,000 and incurs exploration costs to discover platinum of \$350,000. NUS Corp estimates that the land has 2,000 lbs of platinum on the land. NUS Corp
• Winter '18
• jane smith

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