Question 2 [42 marks] Presented below is information related to non-current asse
ID: 2785600 • Letter: Q
Question
Question 2 [42 marks] Presented below is information related to non-current assets owned by Marley Company at December 31, 2015. Equipment $7 000 000 1 500000 Copyright $2 700 000 Cost Accumulated depreciation to date Carrying amount Value-in-use Fair value less cost of sell Recoverable amoun 2 350 000 5 000 000 4 400000 1 500 000 Assume that Marley will continue to use both assets in the future. As of December 31, 2015, the equipment had a remaining useful of 4 years and the copyrights had a remaining useful life ofs years Required: la) Prepare the journal entries (if any) to record the impairment of the assets at December 31, 2015 Prepare the journal entries to record depreciation and amortization expense for 016 The recoverable amounts at December 31, 2016, of the equipment is 55 750000 and the copyrights is $1 600000. Prepare the journal entries (if any) necessary to account for impairment (16 marks) lb) (14 marks) (c) (16 marks) Id) What is the amount for depreciation and amortization for 20177 (6 marks)Explanation / Answer
A) calculation of impairment of an asset at December 31st 2015
Equipment:
Carrying amount =$7000,000-1500,000=$5500,000
Recoverable amount is higher of the two below I.e $5000,000
Value in use $5000,000 and
Net selling price of $4400,000
Impairment loss = carrying amount- Recovarable amount
Impairment loss of equipment =$5500,000-$5000,000=$500,000
Copyrights:
Impairment loss=$2350,000-$1500,000=$850,000
Entries to be passed in the books of accounts for December 31st 2015
Impairment loss account Dr $1350,000
To equipment account $500,000
To copyrights $850,000
(Being impairment loss recognised during the year)
Profit and loss account Dr $1350,000
To Impairment loss account $1350,000
(Being impairment accounted during the year)
B) Depreciation and amortization for December 31st 2016
Equipment remaining life is 4 years. So depreciation =$5000,000/4years = $1250,000
Copyrights having remaining life of 5 years so amortization charges = $1500,000/5years =$300,000
Entries to be passed in books:-
1) Depreciation a/c Dr $1250,000
To equipment a/c $1250,000
2) Profit and loss a/c Dr $1250,000
To Depreciation a/c $1250,000
3) Amortization expenses a/c Dr $300,000
To copyrights a/c $300,000
4) Profit and loss a/c Dr $300,000
To amortization expenses a/c $300,000
C) Reversal of impairment loss for an asset to be treated as income. Any increase in the carrying amount
Above this carrying amount is revaluation profit.
Depreciation (amortisation) charges of the asset should be adjusted in future periods to allocate assets revised
Carrying amount less it's residual value(If any) over it's remaining useful life.
The Recovarable amount at December 31st 2016 of equipment is $5750,000 and copy rights $1600,000
Entries to be passed for the above reversal of impairment loss
1) Asset a/c Dr
To reversal of impairment
2) Reversal of Impairment a/c Dr
To Profit and loss a/c
D) Calculation of depreciation and amortization for the year ended 31st December 2017
Equipment =$5750,000/3years( remaining life) =$1916,667 Depreciation
Copyrights = $1600,000/4years (remaining life) =$400,000 amortization expenses
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