Evan Company purchased a machine for $1,400,000 on January 1, 2019. Evan estimates the machine will have a ten-year useful life and a salvage value of $200,000. Evan uses a straight-line depreciation method. On December 31, 2022, economic conditions suggested that Evan’s machine had become impaired. Evan estimates that expected future cash flows from using the equipment will be $360,000 and the fair value of the machine is $250,000. Evan intends to use the machine for two more years (2023 and 2024). Prepare the entry (if any) Evan should make on 12-31-22 for impairment. Prepare any entry (entries) Evan should make on 12-31-23 relating to using the machine.
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.
Evan Company purchased a machine for $1,400,000 on January 1, 2019. Evan estimates the machine will have a ten-year useful life and a salvage value of $200,000. Evan uses a
- Prepare the entry (if any) Evan should make on 12-31-22 for impairment.
- Prepare any entry (entries) Evan should make on 12-31-23 relating to using the machine.
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