Problem VII.

Johnson Company purchased equipment 8 years ago for P4,000,000.The equipmenthas been depreciated using the straight-line method with a 20-year useful life and 10%residual value.Johnson's operations have experienced significant losses for the past2 years and, as a result, the company has decided that the equipment should beevaluated for possible impairment.The management of JohnsonCompany estimatesthat the equipment has a remaining useful life of 7 years.Net cash inflow from theequipment will be P320,000 per year.The fair value of the equipment is P960,000.Nogoodwill was associ ated with the purchase of the equipment.

(a)Determine if an impairment loss should be recognized.

(b)Determine the amount of the loss and prepare the journal entry to record the

loss.