Computing and Assessing Plant Asset Impairment
Zeibart Company purchases equipment for $235,000 on July 1,
2012, with an estimated useful life of 10 years and expected
salvage value of $28,000. Straight-line depreciation is used. On
July 1, 2016, economic factors cause the market value of the
equipment to decline to $97,500. On this date, Zeibart examines the
equipment for impairment and estimates $127,500 in future cash
inflows related to use of this equipment.
a. Is the equipment impaired at July 1, 2016?
AnswerYesNo
b. Compute the impairment loss (if any) as of 7/1/2016 as well
as the depreciation expense for the 12 months from July 1, 2016 to
July 1, 2017. Round calculations to the nearest dollar.
Using the financial statement effects template, show how those two
entries affect Zeibart Company’s balance sheet and income
statement.
|
|
A) Yes Asset is impaired as on 1st July,2016.
B)
Given, | |||||
Asset purchased on 1st July 2012 | 235000 | ||||
Salvage Value | 28000 | ||||
Life of Asset | 10years | ||||
Depreciation per year | 20700 | ||||
Vale of Asset as on 1st July, 2016 | 152200 | ||||
Net Realisable Value of Asset | 127500 | ||||
Sale Value | 127500 | ||||
Or | |||||
Market Value | 97500 | ||||
Whichever is Higher i.e. | 127500 | ||||
Impairment Loss | 24700 | ||||
Depreciation Value for 1st July2016 - 2017 | 16583.33 |
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