ABC purchased equipment for its manufacturing plant and furniture for its office

Question

ABC purchased equipment for its manufacturing plant and furniture for its office building during the fiscal year 2014. Information pertaining to the purchases is detailed below. 6 years Double-declining balance On December 31,2015, after recording all depreciation for the year, ABC decides to check both the equipment and furniture for impairment. It computes the following pertinent information: (Round all numbers to the nearest -whole dollar.') What is the amount of impairment loss (if any) to be recorded on the equipment and furniture at December 31,2015? Equipment $ Furniture $ How much depreciation expense should be recorded for the furniture in the fiscal year ended December 31, 2016?

Explanation / Answer

Depreciation calculation:-

1. Furniture

(NOTE A):- Depreciation on Equipment:- (Double declining method)

Year 2014 = (60000 - 6000) / 6 = 9000 * 2 = 18000

Year 2015 = (60000 - 6000) / 6 = 9000 * 2 = 18000

Carrying amount:-

A.) Calculation of impairment loss at December 31, 2015 :-

  Impairment loss in case of Furniture:-

   = Carrying value - Recoverable amount

   = 21500 - 18000

   = $ 3500

Impairment loss in case of Equipment:- There is no impairment loss in case of equipment as the recoverable amount of $ 24500 is greater than carrying amount of $ 24000.

Conclusion:- Impairment Loss

B.) Depreciation expense for Furniture in Fiscal year ended December 31, 2016:-

   Revised Carrying value = 21500 - 3500 = 18000

Therefore, depreciation expense for Furniture in Fiscal year ended December 31, 2016

   = (18000 - 4000) / 14

= $ 1000

General:- (Remember that recoverable amount is present value of expected future net cash flows.)

Depreciation amount for year 2014 Depreciation amount for year 2015

1. Furniture

1250 [( 24000 - 4000) / 16 ] 1250 [( 24000 - 4000) / 16 ] 2. Equipment 18000 (NOTE A) 18000 (NOTE A)

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