Intangible Asset & Impairment PT Cabo is operating in the cosmetics industry. A company-owned machine was purchased on January 1, 2019 for $50,000,000. The machine is depreciated on a straight line basis over 10 years with no residual value. Machine is typically used to manufacture a brand of whitening cream. At the end of 2021, the company faced a lawsuit from a customer named Ms. Yuna. She claims that the whitening cream product caused her skin to blacken and experience serious irritation. The lawsuit had a serious impact on product sales. According to the company's research division report, if the machine is still used, the value-in-use arising from the machine is only $15,000,000. Conversely, if the machine is sold, the company will receive $18,700,000, before deducting 10% of the selling price for selling costs. At the end of 2022, the trial process revealed that Ms. Yuna accusations were just hoaxes. The company sued Ms. Boni until she was finally imprisoned. Now, the company estimates that the recoverable amount of the machines is $40,000,000. Instructions: a. Determine the amount of the impairment loss that needs to be recognized on December 31, 2021! b. Prepare all the necessary journal entries (including depreciation) on December 31, 2021!
Intangible Asset & Impairment PT Cabo is operating in the cosmetics industry. A company-owned machine was purchased on January 1, 2019 for $50,000,000. The machine is depreciated on a straight line basis over 10 years with no residual value. Machine is typically used to manufacture a brand of whitening cream. At the end of 2021, the company faced a lawsuit from a customer named Ms. Yuna. She claims that the whitening cream product caused her skin to blacken and experience serious irritation. The lawsuit had a serious impact on product sales. According to the company's research division report, if the machine is still used, the value-in-use arising from the machine is only $15,000,000. Conversely, if the machine is sold, the company will receive $18,700,000, before deducting 10% of the selling price for selling costs. At the end of 2022, the trial process revealed that Ms. Yuna accusations were just hoaxes. The company sued Ms. Boni until she was finally imprisoned. Now, the company estimates that the recoverable amount of the machines is $40,000,000. Instructions: a. Determine the amount of the impairment loss that needs to be recognized on December 31, 2021! b. Prepare all the necessary journal entries (including depreciation) on December 31, 2021!
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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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Chapter : Intangible Asset & Impairment
PT Cabo is operating in the cosmetics industry. A company-owned machine was purchased on January 1, 2019 for $50,000,000. The machine is depreciated on a straight line basis over 10 years with no residual value. Machine is typically used to manufacture a brand of whitening cream.
At the end of 2021, the company faced a lawsuit from a customer named Ms. Yuna. She claims that the whitening cream product caused her skin to blacken and experience serious irritation.
The lawsuit had a serious impact on product sales. According to the company's research division report, if the machine is still used, the value-in-use arising from the machine is only $15,000,000. Conversely, if the machine is sold, the company will receive $18,700,000, before deducting 10% of the selling price for selling costs.
At the end of 2022, the trial process revealed that Ms. Yuna accusations were just hoaxes. The company sued Ms. Boni until she was finally imprisoned. Now, the company estimates that the recoverable amount of the machines is $40,000,000.
Instructions:
a. Determine the amount of the impairment loss that needs to be recognized on December 31, 2021!
b. Prepare all the necessary journal entries (including depreciation) on December 31, 2021!
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