Reference no: EM13866265
On January 1, 2006, the Vallahara Company purchased machinery for $650,000 which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight line method to a residual value of $50,000. Late in 2010, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of five years, over which it estimates the asset will produce total cash inflows of $1,000,000 and will incur total cash outflows of $825,000. The cash flows are independent of the company's other activities and will occur evenly each year. The company is not able to determine the fair value based on a current selling price of the machinery. The company's discount rate is 10%.
Required:
1. Prepare schedules to determine whether, at the end of 2010, the machinery is impaired and, if so, the impairment loss to be recognized.
2. If the machinery is impaired, prepare the journal entry to record the impairment.
3. If the company uses IFRS and determines that the fair value of the machinery is $200,000 and that it would cost $10,000 to sell the machine, how much would the company recognize as the impairment loss?
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The cash flows are independent of the company''s
: On January 1, 2006, the Vallahara Company purchased machinery for $650,000 which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight line method to a residual value of $50,000.
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