At the end of 2022, GM did not have any PP&E. On Jan 1, 2023, GM purchased the following assets. Details for setting up depreciation schedules are summarized below: Cost Assets Residual Method Useful life Truck Acquisition 1/1/2023 Warehouse 1/1/2023 1/1/2023 1/1/2023 Multiple Choice $1,000,000 Factory Machinery Unit-of production Machinery's estimated total production capacity is 50,000 units of cars. During 2023, GM produced a total of 10,000 units using the Machinery. On Dec 31, 2023, sudden changes in the operational and market conditions indicate that the sum of undiscounted future cash flows from the factory is now estimated at $1,800,000. The fair value of the Factory as of the date is $1,500,000. After recognizing depreciation expense for 2023 as scheduled, GM wrote-off the factory. The remaining service life is reduced to additional 5 years and the residual value is updated to $150,000. Depreciation for the factory using these new parameters will start from 2024 with the double-declining method. During 2024, GM produced a total of 15,000 units using the Machinery. What is the amount of loss on impairment GM will recognize at the end of 2023? $400,000 $900,000 500,000 100,000 2,000,000 800,000 $600,000 700,000 3,000,000 2,000,000 500,000 Straight-line Sum-of-the years'- digits Double-declining 10 10 10 10
At the end of 2022, GM did not have any PP&E. On Jan 1, 2023, GM purchased the following assets. Details for setting up depreciation schedules are summarized below: Cost Assets Residual Method Useful life Truck Acquisition 1/1/2023 Warehouse 1/1/2023 1/1/2023 1/1/2023 Multiple Choice $1,000,000 Factory Machinery Unit-of production Machinery's estimated total production capacity is 50,000 units of cars. During 2023, GM produced a total of 10,000 units using the Machinery. On Dec 31, 2023, sudden changes in the operational and market conditions indicate that the sum of undiscounted future cash flows from the factory is now estimated at $1,800,000. The fair value of the Factory as of the date is $1,500,000. After recognizing depreciation expense for 2023 as scheduled, GM wrote-off the factory. The remaining service life is reduced to additional 5 years and the residual value is updated to $150,000. Depreciation for the factory using these new parameters will start from 2024 with the double-declining method. During 2024, GM produced a total of 15,000 units using the Machinery. What is the amount of loss on impairment GM will recognize at the end of 2023? $400,000 $900,000 500,000 100,000 2,000,000 800,000 $600,000 700,000 3,000,000 2,000,000 500,000 Straight-line Sum-of-the years'- digits Double-declining 10 10 10 10
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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A8
Transcribed Image Text:At the end of 2022, GM did not have any PP&E.
On Jan 1, 2023, GM purchased the following assets. Details for setting up depreciation schedules are summarized below:
Assets
Acquisition Cost
Residual
Method
Useful life
Truck
1/1/2023
Warehouse 1/1/2023
1/1/2023
1/1/2023
Multiple Choice
3,000,000
Factory
Machinery
700,000
2,000,000 500,000 Unit-of production
Machinery's estimated total production capacity is 50,000 units of cars. During 2023, GM produced a total of 10,000 units using the Machinery.
On Dec 31, 2023, sudden changes in the operational and market conditions indicate that the sum of undiscounted future cash flows from the factory is
now estimated at $1,800,000. The fair value of the Factory as of the date is $1,500,000. After recognizing depreciation expense for 2023 as scheduled,
GM wrote-off the factory. The remaining service life is reduced to additional 5 years and the residual value is updated to $150,000. Depreciation for the
factory using these new parameters will start from 2024 with the double-declining method.
During 2024, GM produced a total of 15,000 units using the Machinery.
What is the amount of loss on impairment GM will recognize at the end of 2023?
$1,000,000
O $400,000
O $900,000
500,000
2,000,000
$600,000
Straight-line
100,000
800,000 Sum-of-the years'-
digits
Double-declining
10
10
10
10
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