On January 1, 2012, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory It is depreciating the machinery over 12 years by the straight line method to a residual value of $50,000 Late in 2016, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of 5 years, over which it estimates the asset will produce total cash inflows of $1,000,000 and will incur total cash outflows of $825,000 The cash flows are independent of the companys other activities and will occur evenly each year Vallahara is not able to determine the fair value based on a current selling price of the machinery Vallaharas discount rate is 10 Required 1 Prepare schedules to determine whether, at the end of 2016, the machinery is impaired and, if so, the impairment loss to be recognized 2 If the machinery is impaired, prepare the journal entry to record the impairment 3 If Vallahara uses IFRS and determines that the fair value of the machinery is $200,000 and that it would cost $10,000 to sell the machine, how much would the company recognize as the impairment loss 4 Assuming that the recoverable amount of the machinery is determined to be $220,000 at the end of 2017, what entry will Vallahara make to record this increase in value under U S GAAP Under IFRS CHART OF ACCOUNTS Vallahara Company General Ledger ASSETS 111 Cash 121 Accounts Receivable 125 Notes Receivable 141 Inventory 152 Prepaid Insurance 184 Machine 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 221 Notes Payable 224 Interest Payable 231 Salaries Payable EQUITY 311 Common Stock 331 Retained Earnings REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 523 Salaries Expense 531 Bad debt Expense 532 Depreciation Expense 539 Miscellaneous Expenses 540 Interest Expense 891 Loss on Impairment If the machinery is impaired, prepare the journal entry to record the impairment at December 31, 2016 under US GAAP PAGE 10 GENERAL JOURNAL DATE ACCOUNT TITLE POST REF DEBIT CREDIT 1 2 Prepare schedules to determine whether, at the end of 2016, the machinery is impaired and, if so, the impairment loss to be recognized Additional Information Complete the Recoverability Test and determine the results of the test Vallahara Company Recoverability Test December 31, 2016 1 Book Value 2 Machinery (cost) 3 Less Accumulated Depreciation 4 Book Value 5 Undiscounted future cash flows 6 Undiscounted future cash flows The book value is than the undiscounted expected net cash flows so Vallahara recognize an impairment loss at December 31, 2016 Complete the Impairment Analysis to determine the amount of the loss (if any) under US GAAP at December 31, 2016 Vallahara Company Impairment Analysis (US GAAP) December 31, 2016 1 Fair Value 2 Machinery (book value) 3 Present Value of the Expected Net Cash Flows 4 Impairment Loss (if any) If Vallahara uses IFRS and determines that the fair value of the machinery is $200,000 and that it would cost $10,000 to sell the machine, how much would the company recognize as the impairment loss Complete the Impairment Analysis for IFRS Vallahara Company Impairment Analysis (IFRS) December 31, 2016 1 Fair Value 2 Costs to sell 3 Book Value 4 Impairment Loss (if any) Assuming that the recoverable amount of the machinery is determined to be $220,000 at the end of 2017, what entry will Vallahara make to record this increase in value under IFRS on December 31, 2017 PAGE 12 GENERAL JOURNAL DATE ACCOUNT TITLE POST REF DEBIT CREDIT 1 Dec 31 Machine 10,000 00 2 Loss on Impairment 10,000 00 No entry is made under IFRS PAGE 12 GENERAL JOURNAL DATE ACCOUNT TITLE POST REF DEBIT CREDIT 1 Dec 31 Machine 30,000 00 2 Loss on Impairment 30,000 00 Assuming that the recoverable amount of the machinery is determined to be $220,000 at the end of 2017, what entry will Vallahara make to record this increase in value under U S GAAP on December 31, 2017 No entry is made under U S GAAP PAGE 12 GENERAL JOURNAL DATE ACCOUNT TITLE POST REF DEBIT CREDIT 1 Dec 31 Machine 10,000 00 2 Loss on Impairment 10,000 00 PAGE 12 GENERAL JOURNAL DATE ACCOUNT TITLE POST REF DEBIT CREDIT 1 Dec 31 Machine 30,000 00 2 Loss on Impairment 30,000 00

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 19, 2024

On January 1, 2012, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory. It is depreciating the machinery over 12 years

On January 1, 2012, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight-line method to a residual value of $50,000. Late in 2016, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of 5 years, over which it estimates the asset will produce total cash inflows of $1,000,000 and will incur total cash outflows of $825,000. The cash flows are independent of the companys other activities and will occur evenly each year. Vallahara is not able to determine the fair value based on a current selling price of the machinery. Vallaharas discount rate is 10%.

Required:

1.	Prepare schedules to determine whether, at the end of 2016, the machinery is impaired and, if so, the impairment loss to be recognized.
2.	If the machinery is impaired, prepare the journal entry to record the impairment.
3.	If Vallahara uses IFRS and determines that the fair value of the machinery is $200,000 and that it would cost $10,000 to sell the machine, how much would the company recognize as the impairment loss?
4.	Assuming that the recoverable amount of the machinery is determined to be $220,000 at the end of 2017, what entry will Vallahara make to record this increase in value under U.S. GAAP? Under IFRS?

CHART OF ACCOUNTS

Vallahara Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
125	Notes Receivable
141	Inventory
152	Prepaid Insurance
184	Machine
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
221	Notes Payable
224	Interest Payable
231	Salaries Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
523	Salaries Expense
531	Bad debt Expense
532	Depreciation Expense
539	Miscellaneous Expenses
540	Interest Expense
891	Loss on Impairment

If the machinery is impaired, prepare the journal entry to record the impairment at December 31, 2016 under US GAAP.

PAGE 10

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2

Prepare schedules to determine whether, at the end of 2016, the machinery is impaired and, if so, the impairment loss to be recognized. Additional Information

Complete the Recoverability Test and determine the results of the test.

Vallahara Company

Recoverability Test

December 31, 2016

1	Book Value:
2	Machinery (cost)
3	Less: Accumulated Depreciation
4	Book Value
5	Undiscounted future cash flows:
6	Undiscounted future cash flows

The book value is than the undiscounted expected net cash flows so Vallahara recognize an impairment loss at December 31, 2016.

Complete the Impairment Analysis to determine the amount of the loss (if any) under US GAAP at December 31, 2016.

Vallahara Company

Impairment Analysis (US GAAP)

December 31, 2016

1	Fair Value:
2	Machinery (book value)
3	Present Value of the Expected Net Cash Flows
4	Impairment Loss (if any)

If Vallahara uses IFRS and determines that the fair value of the machinery is $200,000 and that it would cost $10,000 to sell the machine, how much would the company recognize as the impairment loss? Complete the Impairment Analysis for IFRS..

Vallahara Company

Impairment Analysis (IFRS)

December 31, 2016

1	Fair Value
2	Costs to sell
3	Book Value
4	Impairment Loss (if any)

Assuming that the recoverable amount of the machinery is determined to be $220,000 at the end of 2017, what entry will Vallahara make to record this increase in value under IFRS on December 31, 2017?

PAGE 12

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	Dec. 31	Machine		10,000.00
2		Loss on Impairment			10,000.00

No entry is made under IFRS

PAGE 12

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	Dec. 31	Machine		30,000.00
2		Loss on Impairment			30,000.00

Assuming that the recoverable amount of the machinery is determined to be $220,000 at the end of 2017, what entry will Vallahara make to record this increase in value under U. S. GAAP on December 31, 2017?

No entry is made under U.S. GAAP

PAGE 12

GENERAL JOURNAL