Reference no: EM132895882
Twin Co. purchased the machine on January 2, 2015, for P500,000. The machine has an estimated useful life of 8 years and a salvage value of P50,000. Depreciation was computed by the 200% declining balance method. In December 2018, Twin determined that there had been a significant decrease in the market value of its machine.
On December 31, 2018, Twin compiled the following information on its machine:
- Expected undiscounted net future cash inflows from continued use and eventual disposal of P160,000
- Expected discounted net future cash inflows from continued use and eventual disposal of 120,000
- Fair value, less cost at disposal 130,000
Problem 1. Compute for impairment loss that should be recognized in the 2018 profit or loss.
On December 31, 2017, Cal Corp. believed that the assets of its cash-generating unit were impaired. The carrying amounts for the unit on December 31, 2017, were:
Buildings, net (60,000 depreciation per year) P240,000
Machinery, net (45,000 depreciation per year) 180,000
Goodwill 15,000
Inventory 80,000
Receivables, net (allowance of 5,000) 35,000
Cash 10,000
Total 570,000
Cal determined that the value in use of the CGU was P535,000. The receivables were considered to be collectible except those considered doubtful.
During 2018, Cal increased the depreciation charge on the buildings to P65,000 and P50,000 for the machinery. The inventory on hand on December 31, 2016, was sold by the end of 2018. On December 31, 2018, the recoverable amount of the CGU was P20,000 greater than the carrying amount of the unit in 2017.
Problem 2. Compute for the carrying amount of the buildings on December 31, 2017, after allocating impairment loss.
Problem 3. Compute for the carrying amount of the machinery on December 31, 2018, after reversal of impairment loss.