Question

During 2013, a company paid $1,200,000 to acquire a roller coaster. The estimated useful life of the roller coaster was estimated at ten years and its residual value was expected to be $200,000. As of December 31, 2018, Accumulated Depreciation in the amount of $500,000 had been recorded on the roller coaster. Management estimates that other amusement parks and scrap dealers would currently pay $600,000 for the roller coaster.

Required:

Part a. Determine the asset impairment loss, if any, on the roller coaster at December 31, 2018.

Part b. Prepare the journal entry to record the asset impairment loss on this roller coaster as of December 31, 2018.

Answer 1

Impairments loss occurs when the fair market value of the asset is less than the book value of asset.

Fair market value is the price thatthe asset will fetch if sold in the market . This is sometimes also defined as future cashflow the asset would expect to generate in continuing operatons.Sometimes it is also called as Recoverable.

Here book value of roller coaster = Original cost - Accumulated depreciation .

It will be $1200000- $500000= $700000

Fair value = $600000

So Impairment loss will be $700000-$600000=$100000

Journal entry on 31st Dec 2018 will be

Impairment loss $100000

Accumulated depreciation $500000

To Asset $600000