Reference no: EM133327509
QUESTION ONE
At the end of 2015, Sapporo Group tests a machine for impairment. The machine is carried at depreciated historical cost, and its carrying amount is $150,000. It has estimated remaining useful life of 10 years. The machine's recoverable amount is determined on the basis of a valuein-use calculation, using a pretax discount rate of 15%. Management-approved budgets reflect estimated costs necessary to maintain the level of economic benefit expected to arise from the machine in its current condition. The following information related to future cash flows is available at the end of 2015
| Year |
future cashflow ($) |
| 2016 |
22,165 |
| 2017 |
21,450 |
| 2018 |
20,550 |
| 2019 |
24,725 |
| 2020 |
25,325 |
| Year |
Future cashflows ($) |
| 2021 |
24,825 |
| 2022 |
24,123 |
| 2023 |
25,533 |
| 2024 |
24,234 |
| 2025 |
22,850 |
a) Compute the amount of the impairment loss at December 31, 2015.
b) Prepare the journal entry to record the impairment loss, if any, at December31, 2015.
QUESTION TWO
a) What is the meaning of depreciation?
b) Give two reasons why depreciation may occur
c) Name any two methods for providing for depreciation giving the likely industries where they may be applied
d) A business buys a fixed asset for 1,000,000/=. The business estimates that the asset will
be used for 5 years, but after exactly two and a half years, however the asset is suddenly sold for 500,000/=. The business always provides a full year's depreciation in the year of purchase and no depreciation in the year of disposal.
Required
Write up the depreciation expense account, the provision for depreciation account and balance sheet extract for years 1 & 2, using
1. Straight line method
2. Double declining method
3. Record the disposal of the asset in a disposal account using both methods.
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