Question

Devante Inc., a medical marijuana company purchased a roller machine for $10,000 on 7.1.16. The machine had a 10 year life, a $500 salvage value and was depreciated using the straight line method. On 12.31.18, a test for impairment indicates the undiscounted cash flows from the machine will be less than its carrying value. The machine’s actual fair value on 12.31.18 is $3,000. What is the loss on impairment on 12.31.18?  

Answer 1

Answer :-

Particulars	Amount
Machine cost	$10,000
Salvage value	$500
Depreciation amount	= $10,000 - $500 = $9,500
Number of years	10
Depreciation per year	= $9,500 / 10 = $950
Depreciation for 2016	= $950 * 50% = $475
Depreciation for 2017	$950
Depreciation for 2018	$950
Total depreciation	= $475 + $950 + $950 = $2,375
Cost of the machine	$10,000
Present value of machine	= $10,000 - 2,375 = $7,625
Actual market value as on date	$3,000
Loss on impairment on 12.31.18	= $7,625 - $3,000 = $4,625