Impairment Loss On May 1, 2019, Smooth, Inc., purchased machinery for $360,000; the estimated useful life was eight years and the expected salvage value was $15,000. Straight-line depreciation is used. On May 1, 20121, economic factors cause the market value of the machinery to decrease to $190,000. On this date, Smooth evaluates whether the machinery is impaired. a. Assume that on May 1, 2021, Smooth estimates future cash flows relating to the use and disposal of the machinery to be $270,000. Is the machinery impaired at May 1, 2021? If it is impaired, what is the amount of the impairment loss? Answer Impairment loss = $Answer b. Assume that on May 1, 2021, Smooth estimates future cash flows relating to the use and disposal of the machinery to be $230,000. Is the machinery impaired at May 1, 2021? If it is impaired, what is the amount of the impairment loss? Answer Impairment loss = $Answer
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.
Impairment Loss
On May 1, 2019, Smooth, Inc., purchased machinery for $360,000; the estimated useful life was eight years and the expected salvage value was $15,000. Straight-line
a. Assume that on May 1, 2021, Smooth estimates future
Answer
Impairment loss = $Answer
b. Assume that on May 1, 2021, Smooth estimates future cash flows relating to the use and disposal of the machinery to be $230,000. Is the machinery impaired at May 1, 2021? If it is impaired, what is the amount of the impairment loss?
Answer
Impairment loss = $Answer
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