Question

On January 1, 2018, Lala Inc. acquired a factory equipment at a cost of P300,000. The...

On January 1, 2018, Lala Inc. acquired a factory equipment at a cost of P300,000. The equipment is being depreciated using the straight-line method over its projected useful life of 10 years. On December 31, 2019, a determination was made that the asset’s recoverable amount was only $192,000. On December 31, 2020, the asset’s recoverable amount was determined to be $222,000 and management believes that the impairment loss previously recognized should be reversed. Assume that the company uses the cost model in accounting for its PPE.

1. How much impairment loss should be recognized on December 31, 2019?

2. What is the asset’s carrying amount on December 31, 2020?

3. What would have been the asset’s carrying amount at December 20, 2020, had the impairment not been recognized in 2019?

4. How much impairment recovery should be reported in the 2020 profit and loss statement of Lala Inc.?

Homework Answers

Answer #1

Impairment Loss = Carrying amount- Recoverable amount

1) Depreciation = 3,00,000/10 = 30,000 Depreciation

Carrying value 31 Dec, 2018 = 3,00,000- 30,000= 270,000

Carrying value 31 Dec, 2019= 270,000- 30,000= 240,000

Impairment Loss as on 31 Dec, 2019 = Carrying amount- Recoverable amount
                                                                       =      240,000 – 192,000

                                                                    =        48,000

2) Asset’s carrying amount on December 31, 2020= Revised asset’s recoverable amount i.e. 222,000

3) Asset’s carrying amount at December 20, 2020, had the impairment not been recognized in 2019= 240,000- 30,000 = 210,000

4) Impairment recovery should be reported in the 2020 profit and loss statement of Lala Inc.-18,000 i.e. (48,000 should be first adjusted from Revaluation reserve i.e 30,000 and rest 18,000 should be adjusted from P&L)

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