Reference no: EM133016934
Question - The Controller of ABC Company ("ABC") has determined that an asset group has several indicators of impairment as of December 31, 2020, the company's year-end. ABC uses the Cost Model. There are two different assets in the asset group, a manufacturing plant and an item of equipment. Information about each of the two assets as of year-end is as follows:
Manufacturing Plant Equipment
Original Cost $157,500 $52,500
Accumulated Depreciation $27,900 $20,100
Net Book Value (Carrying Amount) $129,600 $32,400
Residual Value $20,000 $10,000
The fair value of the asset group (i.e. the two assets combined) at December 31, 2020 has been determined to be $136,000 and, if sold, the company would incur legal fees of $3,000 and sales commissions of $4,000.
ABC believes that the asset group can operate for another nine years. Future net operating cash flows associated with this asset group are expected to be $14,000 for each of the next eight years. The final year net operating cash flow is expected to be $18,000, excluding the residual value. The applicable discount rate, if required, is 7%. Assume all cash flows occur at the end of the applicable year.
REQUIRED -
1. Under ASPE, what are the recognition criteria for impairment of property, plant and equipment?
2. Determine if the carrying amount of the asset group is or is not recoverable.
3. Ignore your answer to part 2 (the previous question). Assume the carrying amount of the asset group is not recoverable. Prepare the impairment journal entry, if any, as of December 31, 2020. If no journal entry is required, explain why. Show your work. 4. Under ASPE, can this impairment write down be reversed in the future?
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