Question

Presented below is information related to equipment owned by Suarez Company at December 31, 2014.


Cost


$ 9,000,000


Accumulated depreciation to date


1,000,000


Expected future net cash flows


7,000,000


Fair value


4,800,000



Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $ 20,000 . As of December 31, 2014, the equipment has a remaining useful life of 4 years.

Answer 1

Answer:

Loss on impairment      3,200,000 debit

      accumulated depreciation         3,200,000 credit

Explanation:

I would assume we must record for the impairment at December 31th 2014 as the equipment current book value is

cost          9,000,000

acc dep   (1,000,000)

book         8,000,000

fair value  4,800,000

book        (8,000,000)

loss           3,200,000

beween the expected future value of the cash flow and the fair value we pick the fair value as the company expect to sale the equipment not to continue operation with it.