Question

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.

Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	-	Contra Assets	=	Liabilities	+	Contrib. Capital	+	Earned Capital
b. Impairment charge	$Answer	+	$Answer	-	$Answer	=	$Answer	+	$Answer	+	$Answer
c. Depreciation expense	Answer	+	Answer	-	Answer	=	Answer	+	Answer	+	Answer

Income Statement
	Revenue	-	Expenses	=	Net Income
	$Answer	-	$Answer	=	$Answer
	Answer	-	Answer	=	Answer

Answer 1

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