A company had purchased a machinery for $1,000,000 in 2014. The accumulated depreciation to date is $280,000. As of December 2018, the estimated useful life of the asset is 8 years, and the company estimated the fair value of the machine at $600,000. Prepare the journal entry if any, to record the impairment of the asset at December 31, 2018. a. Debit Loss on impairment account for $400,000 and credit the Accumulated depreciation on machinery account for $400,000. b. Debit Loss on impairment account for $120,000 and credit the Accumulated depreciation on machinery account for $120,000. c. Debit Accumulated depreciation on machinery account for $120,000 and credit the Loss on impairment account for $120,000. d. Debit Accumulated depreciation on machinery account for $400,000 and credit the Loss on impairment account for $400,000.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A company had purchased a machinery for $1,000,000 in 2014. The
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