On Jan. 1, 2020, ABC Corporation purchased an equipment with a cost of P4,400,000. The equipment has a 6‐year life and a residual value Of P200,000. It is depreciated using the sum‐of‐years digits method. On Jan. 1, 2024, ABC determined that the equipment is impaired. Its fair value less cost to dispose is P750,000. Net annual cashflows from its use is P400,000 for the remaining useful life. The appropriate discount rate is 7%. Compute for the following: 6. Carrying value of the equipment before impairment 7. Value in use of the equipment 8. Impairment loss on Jan. 1, 2024 9. Carrying value of the equipment on Dec. 31, 2024
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.
On Jan. 1, 2020, ABC Corporation purchased an equipment with a
cost of P4,400,000. The equipment has a 6‐year life and a residual
value Of P200,000. It is
method.
On Jan. 1, 2024, ABC determined that the equipment is impaired. Its
fair value less cost to dispose is P750,000. Net annual cashflows
from its use is P400,000 for the remaining useful life. The
appropriate discount rate is 7%.
Compute for the following:
6. Carrying value of the equipment before impairment
7. Value in use of the equipment
8. Impairment loss on Jan. 1, 2024
9. Carrying value of the equipment on Dec. 31, 2024
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