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2 Impairment Loss

Machine 1 has an impairment loss of $15,000 and Machine 2 has an impairment loss of $2,000, for a total impairment loss of $17,000. The carrying amount of machinery to be recognized in the accounts is $468,000. The recoverable value of the equipment on January 1, 2027 is $542,570. The impairment loss to be recognized on this date is $39,775. The depreciation expense for 2027 is $101,514. For 2021, Yes Sir Company recognizes an impairment loss of $900,000. For 2022, Yes Sir Company recognizes a gain on reversal of impairment of $400,000.

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883 views2 pages

2 Impairment Loss

Machine 1 has an impairment loss of $15,000 and Machine 2 has an impairment loss of $2,000, for a total impairment loss of $17,000. The carrying amount of machinery to be recognized in the accounts is $468,000. The recoverable value of the equipment on January 1, 2027 is $542,570. The impairment loss to be recognized on this date is $39,775. The depreciation expense for 2027 is $101,514. For 2021, Yes Sir Company recognizes an impairment loss of $900,000. For 2022, Yes Sir Company recognizes a gain on reversal of impairment of $400,000.

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Handout 02

Impairment Loss
Identifying Impaired Asset
Numbers 1 and 2
At the current year-end, Claxon Co has undertaken impairment tests on two machines. The following information is
relevant:

Machine 1 Machine 2
Cost 450,000 250,000
Useful life 10 years 15 years
Age 4 years 3 years
Fair value 300,000 230,000
Cost of disposal 15,000 35,000
Value in use 260,000 198,000
1) What is the total amount of impairment loss that should be recognized in the current year profit or loss?
A. 13,000
B. 12,000
C. 2,000
D. 0
2) At what carrying amount should machinery be recognized in the accounts of Claxon Co?
A. 498,000
B. 470,000
C. 468,000
D. 455,000

Value-in-use & Impairment Loss


Numbers 3, 4 and 5
On January 1, 2024, Barbed Company purchased an equipment for P900,000, with an estimated useful life of 8 years.
Straight-line method of depreciation is to be used with no salvage value. On January 1, 2027, the equipment was tested
for impairment.

The estimated selling price of the equipment is P550,000 and the estimated cost to sell is P30,000. The asset is expected
to provide annual net cash inflows of P145,000 during the remaining useful life of the equipment and estimated a residual
value of P35,000 at the end of its useful life.

The appropriate pre-tax discount rate that reflects current market assessments of the time value of money is 12%. The
relevant present value factors are provided below:

Present value factor of 1 at 12% for 8 periods 0.404


Present value factor of annuity at 12% for 8 periods 4.968
Present value factor of 1 at 12% for 5 periods 0.567
Present value factor of annuity at 12% for 5 periods 3.605

3) How much is the recoverable value of the equipment on January 1, 2027?


A. 520,000
B. 542,570
C. 522,725
D. 550,000
4) How much is the impairment loss to be recognized on January 1, 2027?
A. 12,500
B. 42,500
C. 19,930
D. 39,775
5) How much is the depreciation expense for the year 2027?
A. 108,514
B. 101,514
C. 103,000
D. 112,500

FAR by: John Bo S. Cayetano, CPA, MBA Page 1 of 2


Gain on Reversal of Impairment
Numbers 6 and 7
On January 1, 2021, Yes Sir Company purchased equipment with cost of P10,000,000, useful life of 10 years and no
residual value. The entity used straight line depreciation. On December 31, 2021 and December 31, 2022, the entity
determined that impairment indicators are present. There is no change in useful life or residual value.

December 31, 2021 December 31, 2022


Fair value less cost of disposal 8,100,000 8,300,000
Value in use 8,550,000 8,200,000
6) What is the impairment loss for 2021?
A. 900,000
B. 450,000
C. 600,000
D. Zero
7) What is the gain on reversal of impairment for 2022?
A. 400,000
B. 700,000
C. 600,000
D. Zero

FAR by: John Bo S. Cayetano, CPA, MBA Page 2 of 2

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