Question

After recording depreciation for the current year, Media Mania Incorporated decided to discontinue using its printing equipment. The equipment had cost $752,000, accumulated depreciation was $554,000, and its fair value (based on estimated future cash flows from selling the equipment) was $52,000.

Determine whether the equipment is impaired.
Prepare the journal entries to record the impairment in asset if any.
Record the entry to remove accumulated depreciation.
Record the impairment loss.

Answer 1

Answer:

1. the printing equipment is Impaired

2. Journal

Impairement Loss $146,000 (debit)

Accumulated Impairement Loss $146,000 (credit)

3. Journal

Accumulated Depreciation $554,000 (debit)

Accumulated Impairement Loss $146,000 (debit)

Printing Equipment (credit) $700,000

Explanation:

Impairement Loss (IAS 36) happens when the Carrying Amount of an Asset Exceeds its Recoverable Amount.

Carrying Amount Calculation

Carrying Amount = Cost - Accumulated Depreciation

                            = $752,000 - $554,000

                            = $198,000

Recoverable Amount Determination

Recoverable amount of an asset is the Higher of :

1. Value in Use or
2. Fair Value Less Cost to Sell

Only the fair value is provided, hence Recoverable amount is $52,000

Analysis for Impairment loss

Carrying Amount $198,000 > Recoverable amount $52,000

Therefore the printing equipment is Impaired

Impairement Loss $146,000 (debit)

Accumulated Impairement Loss $146,000 (credit)