Buch Company acquired a piece of equipment in Year 1 at a cost of $100,000. The equipment has a 10-
Buch Company acquired a piece of equipment in Year 1 at a cost of $100,000. The equipment has a 10-
Chapter1: Financial Statements And Business Decisions
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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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Transcribed Image Text:Buch Company acquired a piece of
equipment in Year 1 at a cost of
$100,000. The equipment has a 10-
year estimated life, zero salvage value,
and is depreciated on a straight-line
basis. Technological innovations take
place in the industry in which the
company operates in Year 3. Buch
gathers the following information for
this piece of equipment at the end of
Year 3: Expected future undiscounted
cash flows - $75,000 Present value of
expected future cash flows - $55,000
Net selling price - $63,000 What is the
impairment loss under U.S. GAAP?
Question 8 options: $0.
$15,000.
$7,000.
$9,000.
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