In January 2019, Winn Company purchased equipment at a cost on P5,000,000. The equipment has a residual value of P1,000,000, a useful life of 8 years and is depreciated by the straight ne method. Two years later, it became apparent that this equipment suffered permanent impairment in value. In January 2021, management determined the recoverable amount of the equipment to be only P1,750,000 with a 2-year remaining useful life and residual value of P250,000. Required: 1. Prepare journal entry to record the impairment loss on January 1, 2021. 2. Prepare journal entry to record the depreciation for 2021. 3. Determine the carrying amount of the equipment on December 31, 2021.
In January 2019, Winn Company purchased equipment at a cost on P5,000,000. The equipment has a residual value of P1,000,000, a useful life of 8 years and is depreciated by the straight ne method. Two years later, it became apparent that this equipment suffered permanent impairment in value. In January 2021, management determined the recoverable amount of the equipment to be only P1,750,000 with a 2-year remaining useful life and residual value of P250,000. Required: 1. Prepare journal entry to record the impairment loss on January 1, 2021. 2. Prepare journal entry to record the depreciation for 2021. 3. Determine the carrying amount of the equipment on December 31, 2021.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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:In January 2019, Winn Company purchased equipment at a
cost on P5,000,000. The equipment has a residual value of
P1,000,000, a useful life of 8 years and is depreciated by the straight
e method.
Two years later, it became apparent that this equipment
suffered permanent impairment in value.
In January 2021, management determined the recoverable
amount of the equipment to be only P1,750,000 with a 2-year
remaining useful life and residual value of P250,000.
Required:
1. Prepare journal entry to record the impairment loss on
January 1, 2021.
2. Prepare journal entry to record the depreciation for 2021.
3. Determine the carrying amount of the equipment on
December 31, 2021.
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