Norbeck Company Limited has a year end of 31 December and operates a factory which makes computer chips for Mobile Phones. It purchased a machine on 1 January 2013 for $300,000 which had a useful life of ten years and is depreciated on the straight-line basis. The estimated scrap value of the machine is $15,000. The machine was revalued to $270,000 on 31 December 2015. There was no change to its useful life at that date. A fire at the factory on 31 December 2016 damaged the machine leaving it with a lower operating capacity. The Accountant believes the company should recognize an impairment loss in relation to this damage. The Accountant provides the following estimates: An equivalent machine would cost $550,000 The damage machine can be sold in its current position for $130,500 Calculate the carrying value of the machine at 31 December 2016
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.
Norbeck Company Limited has a year end of 31 December and operates a factory which makes computer chips for Mobile Phones.
It purchased a machine on 1 January 2013 for $300,000 which had a useful life of ten years and is
There was no change to its useful life at that date. A fire at the factory on 31 December 2016 damaged the machine leaving it with a lower operating capacity. The Accountant believes the company should recognize an impairment loss in relation to this damage. The Accountant provides the following estimates:
An equivalent machine would cost $550,000
The damage machine can be sold in its current position for $130,500
Calculate the carrying value of the machine at 31 December 2016
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