Question
In December 2020, the management of POFA reviewed its property, plant, and equipment and determined that one machine showed evidence of impairment. The following information
In December 2020, the management of POFA reviewed its property, plant, and equipment and determined that one machine showed evidence of impairment. The following information pertains to this machine: Cost $325,000 Accumulated depreciation to date $175,000 Estimated future cash flows, undiscounted $140,000 Present value of estimated future cash flows $110,000 Fair value $125,000 Costs of disposal $ 9,000 POFA intends to continue using the asset for the next three years, with no expected residual value at the end of that period. POFA uses straight-line depreciation.
Required:
a. Determine if the asset is impaired under IAS 36.
b. If impairment is indicated in part (a), prepare the necessary journal entry at December 31, 2020, to record the impairment.
c. Prepare the journal entry to record depreciation for 2021.
d. After recording the depreciation for 2021, management reassesses the asset and determines that the fair value is now $120,000, the undiscounted future cash flows are $110,000, and the present value of the estimated future cash flows is $90,000. There was no change to the costs of disposal. Prepare the journal entry, if any, to record the reversal of impairment
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