On December 31, 20x7, a manufacturing plant with a carrying amount of P40,000,000 (cost of P50,000,000 less accumulated depreciation of P10,000,000) was tested for impairment. An impairment loss of P12,000,000 was recognized and the basis of the recoverable amount was the estimated fair value less costs to sell of P28,000,000. The plant had a remaining useful life of 10 years. On December 31, 20x9, there are indications that the impairment loss recognized in 20x7 may be reversed. The value in use is estimated at P35,000,000 whilst the fair value less costs to sell is estimated at P30,000,000. What is the amount of impairment reversal should be recognized on December 31, 20x9?
On December 31, 20x7, a manufacturing plant with a carrying amount of P40,000,000 (cost of P50,000,000 less accumulated depreciation of P10,000,000) was tested for impairment. An impairment loss of P12,000,000 was recognized and the basis of the recoverable amount was the estimated fair value less costs to sell of P28,000,000. The plant had a remaining useful life of 10 years. On December 31, 20x9, there are indications that the impairment loss recognized in 20x7 may be reversed. The value in use is estimated at P35,000,000 whilst the fair value less costs to sell is estimated at P30,000,000. What is the amount of impairment reversal should be recognized on December 31, 20x9?
Chapter1: Financial Statements And Business Decisions
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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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On December 31, 20x7, a manufacturing plant with a carrying amount of P40,000,000 (cost of P50,000,000 less accumulated depreciation of P10,000,000) was tested for impairment. An impairment loss of P12,000,000 was recognized and the basis of the recoverable amount was the estimated fair value less costs to sell of P28,000,000. The plant had a remaining useful life of 10 years. On December 31, 20x9, there are indications that the impairment loss recognized in 20x7 may be reversed. The value in use is estimated at P35,000,000 whilst the fair value less costs to sell is estimated at P30,000,000. What is the amount of impairment reversal should be recognized on December 31, 20x9?
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