Homework SourseComputing and Assessing Plant Asset Impairment Zeibart Compa
Computing and Assessing Plant Asset Impairment
Zeibart Company purchases equipment for $215,000 on July 1, 2012, with an estimated useful life of 10 years and expected salvage value of $21,500. Straight-line depreciation is used. On July 1, 2016, economic factors cause the market value of the equipment to decline to $85,000. On this date, Zeibart examines the equipment for impairment and estimates $115,000 in future cash inflows related to use of this equipment.
a. Is the equipment impaired at July 1, 2016?
AnswerYesNo
b. Compute the impairment loss (if any) as of 7/1/2016 as well as the depreciation expense for the 12 months from July 1, 2016 to July 1, 2017. Round calculations to the nearest dollar.
Using the financial statement effects template, show how those two entries affect Zeibart Company’s balance sheet and income statement.
Balance Sheet
Transaction
Cash Asset
+
Noncash Assets
-
Contra Assets
=
Liabilities
+
Contrib. Capital
+
Earned Capital
b. Impairment charge
$Answer
+
$Answer
-
$Answer
=
$Answer
+
$Answer
+
$Answer
c. Depreciation expense
Answer
+
Answer
-
Answer
=
Answer
+
Answer
+
Answer
Income Statement
Revenue
-
Expenses
=
Net Income
$Answer
-
$Answer
=
$Answer
Answer
-
Answer
=
Answer
|
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Solution
a. Yes
Since the expected Future cash flow (115,000) is less than the Carrying value of the Assets (137,600) as on 1 July 2016.
b.
Please note that for Depreciation Calculation it is assumed that now no Salvage Value at the end of the Useful Life.
If you want to include the Salvage then the calculation will be as follows:
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| Cost of Equipment | 215,000 |
| Less: Salvage value | 21,500 |
| Depreciable value | 193,500 |
| Deprecitaion(193500/10) | 19,350 |
