Cake Company reported an impairment loss of P784,000 in its income statement for the year 2020. This loss was related to a building that was acquired on January 1, 2010 with a cost of P6,000,000 (no residual value). Depreciation on the building is computed on a straight-line basis and annual depreciation on cost is P240,000. As a result of the building's impairment, depreciation for the year 2021 was revised based on the asset's recoverable amount at December 31, 2020. On December 31, 2023, after recording the depreciation for the year, the entity decided to measure its building using revaluation model. At that time, there were evidences of recovery in the building value owing to the flourishing business in Cake Company's location. The building was then appraised at a fair value of P2,800,000. What is the amount of gain on impairment recovery that Cake Company should report in its 2023 income statement and the amount of revaluation surplus reported in equity at December 31, 2023, respectively?
Cake Company reported an impairment loss of P784,000 in its income statement for the year 2020. This loss was related to a building that was acquired on January 1, 2010 with a cost of P6,000,000 (no residual value). Depreciation on the building is computed on a straight-line basis and annual depreciation on cost is P240,000. As a result of the building's impairment, depreciation for the year 2021 was revised based on the asset's recoverable amount at December 31, 2020. On December 31, 2023, after recording the depreciation for the year, the entity decided to measure its building using revaluation model. At that time, there were evidences of recovery in the building value owing to the flourishing business in Cake Company's location. The building was then appraised at a fair value of P2,800,000. What is the amount of gain on impairment recovery that Cake Company should report in its 2023 income statement and the amount of revaluation surplus reported in equity at December 31, 2023, respectively?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
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.
Topic Video
Question
Cake Company reported an impairment loss of P784,000 in its income statement for the year 2020. This loss was related to a building that was acquired on January 1, 2010 with a cost of P6,000,000 (no residual value). Depreciation on the building is computed on a straight-line basis and annual depreciation on cost is P240,000. As a result of the building's impairment, depreciation for the year 2021 was revised based on the asset's recoverable amount at December 31, 2020.
On December 31, 2023, after recording the depreciation for the year, the entity decided to measure its building using revaluation model. At that time, there were evidences of recovery in the building value owing to the flourishing business in Cake Company's location. The building was then appraised at a fair value of P2,800,000.
What is the amount of gain on impairment recovery that Cake Company should report in its 2023 income statement and the amount of revaluation surplus reported in equity at December 31, 2023, respectively?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education