Reference no: EM132619191
Hydrangea Metals is a mining company that had been renting out an old sluice box to other small mining operations in the area. However, in 2020, the equipment started to have significant down time due to mechanical break downs.
The following related to the equipment at December 31, 2020:
Cost: $20,000
Accumulated depreciation 15,000
Expected future net cash flows (undiscounted) 4,000
Expected future net cash flows (discounted, value in use) 3,170
Fair value 2,400
Costs to sell (costs of disposal) 0
Assume that Hydrangea will continue to use this asset in the future. As at Dec. 31, 2020, the equipment has a remaining useful life of 4 years. Hydrangea uses straight line depreciation.
Question 1: Assuming the company follows ASPE and uses the cost recovery impairment model, prepare the journal entries for impairment if any, on Dec. 31, 2020. If no entry is required, explain why
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