On January 1, 2018, Larkspur Ltd. purchased equipment for $712,000. The equipment was assumed to have an 8-year useful life and no residual value, and was to be depreciated using the straight-line method. On January 1, 2020, Larkspur's management became concerned that the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $511,750, the discounted future net cash flows was $453,900, and the current fair value of the equipment (after costs to sell) was $445,000.

1. Assuming that Larkspur is a private Canadian company following ASPE, identify which model should be used to test for impairment.

Which should be used to test for impairment?

a. Rational entity impairment model

b. Cost recovery impairment

2. Assuming that Larkspur is a public Canadian company, identify which model should be used to test for impairment.

Which should be used to test for impairment?

a. Rational entity impairment model

b. Cost recovery impairment

Record the journal entry to record the impairment loss, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit Record the journal entry to record the impairment loss, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit e Textbook and Media