Question

(Impairment) Presented below in information related to equipment owned by Pujols Company at December 31, 2015

Cost	9000000
Accumulated depreciation to date	1000000
Value-in-use	7000000
Fair value less cost of diposal	4400000

Assume that Pujols will continue to use this asset in the future. As of December 31,2015, the equipment has a remaining useful life of 4 years

1) Prepare the jornal entry (if any) to record the impairment of the asset at December 31,2015.
2) Prepare the journal entry to record depreciation expense for 2016.
3) The recoverable amount of the equipment at December 31, 2016, is 6000000. Prepare the journal entry(if any) necessary to record this increase.

Answer 1

1
		Debit	Credit
December 31,2015	Loss on Impairment	3600000
	Accumulated Depreciation—Equipment		3600000
2
		Debit	Credit
December 31,2016	Depreciation Expense	1100000
	Accumulated Depreciation—Equipment		1100000
3
December 31,2016	NO entry is required
	Workings:
	1
	Cost	9000000
	Less: Accumulated depreciation	-1000000
	Carrying amount	8000000
	Less: Fair value	-4400000
	Loss on impairment	3600000
	2
	New carrying amount	4400000
	Divided by Remaining Useful life	4
	Depreciation expense	1100000
	3
	Restoration of any impairment loss is not permitted for assets to be used in future