Section E: Impairment The following information is related to equipment owned by

Question

Section E: Impairment The following information is related to equipment owned by the COB Company at December 31, 2017 Cost. Accumulated depreciation to date Expected future net cash flows Fair value $10,000,000 3,000,000 6,000,000 4,000,000 COB will continue to use this equipment in the future. The equipment has a remaining useful life of 4 years. What amount (if any) should COB Company report as an impairment loss for 20177 What amount (if any) should COB Company record as Depreciation Expense for 2018 Section 7: Intangible Assets The following transactions of ASU Corporation occurred at January 1, 2017. Prepare the journal entry needed at January 1 to record this transaction and at December 31, 2017 to record any resultant amortization. If no entry is required, write "no entry needed." ASU paid COB Company $300,000 for a franchise to market a particular product, using the COB name and logo in promotional material. The franchise agreement runs for as long as ASU is in business. January 1,.2017 1.

Explanation / Answer

SECTION E: IMPAIRMENT

SOLUTION: Calculation of impairment loss for 2017

Carrying cost= cost of the equipment - accumulated depreciation

= 10000000 - 3000000 = $7,000,000

Recoverable amount= fair value minus cost of sell or net cash flow of future value whichever is higher

= (4000000 - 0) or 6000000 = 4000000 or 6000000 = $6,000,000

Therefore, Impairment loss = carrying cost - recoverable amount

= 7000000 - 6000000 = $1,000,000

Depreciation expense for 2018= (10000000 - 3000000)/4 = $1,750,000

SECTION 7: INTANGIBLE ASSETS

In the books of ASU Corporation

JOURNAL

NOTE: Since, there is no definite life of the intangible asset(franchise agreement) we will not calculate the amortisation expense. hence, there will be no journal entry.

DATE PARTICULARS AMOUNT($) DEBIT AMOUNT($) CREDIT 1ST JANUARY, 2017 Intangible asset(Franchise agreement) 300000 cash 300000 31ST DECEMBER, 2017 NO ENTRY NEEDED

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