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Determine the amount of the loss

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Problem - Johnson Company purchased equipment 8 years ago for P4,000,000. The equipment has been depreciated using the straight-line method with a 20-year useful life and 10% residual value. Johnson's operations have experienced significant losses for the past 2 years and, as a result, the company has decided that the equipment should be evaluated for possible impairment. The management of Johnson Company estimates that the equipment has a remaining useful life of 7 years. Net cash inflow from the equipment will be P320,000 per year. The fair value of the equipment is P960,000. No goodwill was associ ated with the purchase of the equipment.

(a) Determine if an impairment loss should be recognized.

(b) Determine the amount of the loss and prepare the journal entry to record the loss.

Reference no: EM132990063

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