On December 31, 2019, an equipment with a carrying amount of P6,500,000 (cost of P10.000,000 less accumulated depreciation of P3,500,000) was tested forimpairment. An impairment loss of P1,250,000 was recognized and the basis is the recoverable amount which is the estimated fair value less costs to sell on thisdate. The equipment had a remaining useful life of 8 years and estimated residual value of P50,000. On December 31, 2022, there are indications that theimpairment loss recognized in 2019 may be reversed. The value in use is based on estimated net cash flows of P1,000,000 every year (discount rate is 7%) while theasset is in use while the fair value was at P4,200,000 and costs to sell is estimated at P90,000. Which of the following statements is (are) correct?Statement 1: The asset is reported in the statement of financial position as of December 31, 2022 at P4,110,000.Statement 2: The income statement for the year ended December 31, 2022 shall report a gain on recovery of P780,250.Statement 3: The amount of depreciation expense to be recognized in 2023 and onwards should be P806,250.O Only statement 3 is correctOnly statement 2 is correctO None of the statements is correctO Only statement 1 is correct

Name: On December 31, 2019, an equipment with a carrying amount of P6,500,0
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Description: On December 31, 2019, an equipment with a carrying amount of P6,500,000 (cost of P10.000,000 less accumulated depreciation of P3,500,000) was tested forimpairment. An impairment loss of P1,250,000 was recognized and the basis is the recoverable amou

Concept of Impairment of assets

Business

Accounting

On December 31, 2019, an equipment with a carrying amount of P6,500,000 (cost of P10,000,000 less accumulated depreciation of P3,500,000) was tested for mpairment. An impairment loss of P1,250,000 was recognized and the basis is the recoverable amount which is the estimated fair value less costs to sell on this date. The equipment had a remaining useful life of 8 years and estimated residual value of P50,000. On December 31, 2022, there are indications that the mpairment loss recognized in 2019 may be reversed. The value in use is based on estimated net cash flows of P1,000,000 every year (discount rate is 7%) while asset is in use while the fair value was at P4,200,000 and costs to sell is estimated at P90,000. Which of the following statements is (are) correct? Statement 1: The asset is reported in the statement of financial position as of December 31, 2022 at P4,110,000. Statement 2: The income statement for the year ended December 31, 2022 shall report a gain on recovery of P780,250. Statement 3: The amount of depreciation expense to be recognized in 2023 and onwards should be P806,250. O Only statement 3 is correct O Only statement 2 is correct O None of the statements is correct

On December 31, 2019, an equipment with a carrying amount of P6,500,000 (cost of P10,000,000 less accumulated depreciation of P3,500,000) was tested for mpairment. An impairment loss of P1,250,000 was recognized and the basis is the recoverable amount which is the estimated fair value less costs to sell on this date. The equipment had a remaining useful life of 8 years and estimated residual value of P50,000. On December 31, 2022, there are indications that the mpairment loss recognized in 2019 may be reversed. The value in use is based on estimated net cash flows of P1,000,000 every year (discount rate is 7%) while asset is in use while the fair value was at P4,200,000 and costs to sell is estimated at P90,000. Which of the following statements is (are) correct? Statement 1: The asset is reported in the statement of financial position as of December 31, 2022 at P4,110,000. Statement 2: The income statement for the year ended December 31, 2022 shall report a gain on recovery of P780,250. Statement 3: The amount of depreciation expense to be recognized in 2023 and onwards should be P806,250. O Only statement 3 is correct O Only statement 2 is correct O None of the statements is correct

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

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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Question

On December 31, 2019, an equipment with a carrying amount of P6,500,000 (cost of P10.000,000 less accumulated depreciation of P3,500,000) was tested for
impairment. An impairment loss of P1,250,000 was recognized and the basis is the recoverable amount which is the estimated fair value less costs to sell on this
date. The equipment had a remaining useful life of 8 years and estimated residual value of P50,000. On December 31, 2022, there are indications that the
impairment loss recognized in 2019 may be reversed. The value in use is based on estimated net cash flows of P1,000,000 every year (discount rate is 7%) while the
asset is in use while the fair value was at P4,200,000 and costs to sell is estimated at P90,000. Which of the following statements is (are) correct?
Statement 1: The asset is reported in the statement of financial position as of December 31, 2022 at P4,110,000.
Statement 2: The income statement for the year ended December 31, 2022 shall report a gain on recovery of P780,250.
Statement 3: The amount of depreciation expense to be recognized in 2023 and onwards should be P806,250.
O Only statement 3 is correct
Only statement 2 is correct
O None of the statements is correct
O Only statement 1 is correct

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