question archive Exercise 1 Genuine Company determined that due to obsolescence an equipment with an original cost of P4,500,000 and accumulated depreciation on January 1, 2020 of P2,100,000 had suffered a permanent impairment and as a result should have a recoverable amount of only P1,500,000 as of the beginning of the year
Exercise 1 Genuine Company determined that due to obsolescence an equipment with an original cost of P4,500,000 and accumulated depreciation on January 1, 2020 of P2,100,000 had suffered a permanent impairment and as a result should have a recoverable amount of only P1,500,000 as of the beginning of the year
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Exercise 1
Genuine Company determined that due to obsolescence an equipment with an original cost of P4,500,000 and accumulated depreciation on January 1, 2020 of P2,100,000 had suffered a permanent impairment and as a result should have a recoverable amount of only P1,500,000 as of the beginning of the year.
In addition, the remaining useful life of the equipment was reduced from 8 to 3 years.
Required)
1)Prepare journal entry to record the impairment on January 1, 2020.
2)Prepare journal entry to record the depreciation for 2020.
3)Determine the carrying amount of the equipment on December 31, 2020.
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1.)
| Impairment loss | 900,000 | |
| Accumulated Depreciation | 900,000 |
2.)
| depreciation expense | 500,000 | |
| accumulated depreciation | 500,000 |
3.)
| Carrying amount December 31, 2020 | 1,000,000 |
Step-by-step explanation
| 1.) | ||
| Original Cost | 4,500,000 | |
| Less: accumulated depreciation | (2,100,000) | |
| Carrying amount on january 1 | 2,400,000 | |
| Less: Recoverable Amount | (1,500,000) | |
| Impairment loss | 900,000 | |
| Impairment loss | 900,000 | |
| Accumulated Depreciation | 900,000 | |
| 2.) | ||
| Recoverable amount | 1,500,000 | |
| Divided by revised useful life | 3 years | |
| depreciation for 2020 | 500,000 | |
| depreciation expense | 500,000 | |
| accumulated depreciation | 500,000 | |
| 3.) | ||
| Recoverable Amount | 1,500,000 | |
| less: Depreciation expense | (500,000) | |
| Carrying amount December 31, 2020 | 1,000,000 |
