Reference no: EM133136360
Question - Indonesia Company currently uses a machine in its operations for the manufacture of widgets. The machine was originally acquired on January 1, 2016 for P 2,200,000 and has a useful life of 8 years with no residual value at the end of its useful life. Indonesia is a calendar-year company and uses the straight-line method of depreciation.
A law was made effective December 30, 2018, restricting the use of the widgets produced by the machine. Consequently, Indonesia reviewed the machine for possible impairment. As of December 31, 2018, the following information is available:
Total remaining undiscounted cash inflows P2,400,000
Total remaining undiscounted cash outflows 1,300,000
Total remaining undiscounted cash flows (net) P1,100,000
Assume that the remaining annual undiscounted cash flows will be received at the end of each of the remaining years of useful life. Assume further that the appropriate discount rate is 10%. Present value information:
PV of P1 at 10% for five periods 0.62
PV of ordinary annuity of P1 at 10% for five periods 3.79
PV of annuity due of P1 at 10% for five periods 4.18
Based on quoted prices and the condition of the machine, Indonesia estimates the net selling price of the machine to be P700,000. On December 31, 2020, the machine was again tested for impairment, and found to have a recoverable amount of P950,000. Indonesia Company uses the cost model in measuring the machine subsequent to initial recognition.
Required -
1. How much is the recoverable value of the machine on December 31, 2018?
a. 919,600
b. 700,000
c. 833,800
d. 682,000
2. How much is the maximum recoverable value of the machine on December 31, 2020?
a. 541,200
b. 125,000
c. 324,720
d. 449,720
3. How much is the depreciation expense for the year 2019?
a. 275,000
b. 183,920
c. 104,225
d. 166,760
4. How much is the recovery from impairment loss to be recorded on December 31, 2020?
a. 449,720
b. 273,240
c. 324,720
d. 125,000
5. How much is the revaluation surplus to be recognized on December 31, 2020?
a. 125,000
b. 273,240
c. 449,720
d. 0
6. How much is the impairment loss to be recognized if any on December 31, 2018?
a. 0
b. 541,200
c. 455,400
d. 675,000