Refer to Requirement 1 and assume that the company uses IFRS. It determines that
ID: 2534857 • Letter: R
Question
Refer to Requirement 1 and assume that the company uses IFRS. It determines that the fair value of the equipment is $630,000 and estimates that it would cost $15,000 to sell the equipment. How much would the company recognize as the impairment loss? Additional Information
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Borstad Company
Impairment Analysis (IFRS)
December 31, 2016
1
Fair Value of Equipment
2
Costs to sell
3
Book Value of Equipment
4
Impairment Loss (if any)
Prepare the journal entry on December 31, 2016 to record the impairment.
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PAGE 12
GENERAL JOURNAL
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On January 1, 2011, Borstad Company purchased equipment for $1,150,000. It is depreciating the equipment over 25 years using the straight-line method and a zero residual value. Late in 2016, because of technological changes in the industry and reduced selling prices for its products, Borstad believes that its equipment may be impaired and will have a remaining useful life of 8 years. Borstad estimates that the equipment will produce cash inflows of $450,000 and will incur cash outflows of $341,000 each year for the next 8 years. It is not able to determine the fair value of the equipment based on a current selling price. Borstad’s discount rate is 10%.
Refer to Requirement 1 and assume that the company uses IFRS. It determines that the fair value of the equipment is $630,000 and estimates that it would cost $15,000 to sell the equipment. How much would the company recognize as the impairment loss?
Step 1: Complete the Recoverability Test below.
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Score: 0/14
Borstad Company
Recoverability Test
December 31, 2016
1
Book Value:
2
Equipment
3
Less: Accumulated Depreciation
4
Book Value
5
Undiscounted expected net cash flows:
6
Undiscounted expected net cash flows
Borstad Company
Impairment Analysis (IFRS)
December 31, 2016
Explanation / Answer
Requirement 1.
Borstad Company
4
Requirement 2:
Requirement 1.
Borstad Company
Impairment Analysis (IFRS) 31-Dec-16 1 Fair Value of Equipemt $ 6,30,000.00 2 Costs to Sell $ 15,000.00 3 Book Value of Equipment $ 8,74,000.004
Impaiment Loss (if any) $ 2,29,000.00Related Questions
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