Refer to Requirement 1 and assume that the company uses IFRS. It determines that the fair value of the equipment is $630,000 and estimates that it would cost $15,000 to sell the equipment. How much would the company recognize as the impairment loss? Additional Information

Score: 0/19

Borstad Company

Impairment Analysis (IFRS)

December 31, 2016

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

Prepare the journal entry on December 31, 2016 to record the impairment.

Question not attempted.

PAGE 12

GENERAL JOURNAL

Score: 0/25

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2

On January 1, 2011, Borstad Company purchased equipment for $1,150,000. It is depreciating the equipment over 25 years using the straight-line method and a zero residual value. Late in 2016, because of technological changes in the industry and reduced selling prices for its products, Borstad believes that its equipment may be impaired and will have a remaining useful life of 8 years. Borstad estimates that the equipment will produce cash inflows of $450,000 and will incur cash outflows of $341,000 each year for the next 8 years. It is not able to determine the fair value of the equipment based on a current selling price. Borstads discount rate is 10%.

Required:

1.

Prepare schedules to determine whether, at the end of 2016, the equipment is impaired and, if so, the impairment loss to be recognized. Enter the Accumulated Depreciation amount as a negative number.

2.

Prepare the journal entry to record the impairment.

3.

Next Level How would your answer to Requirement 1 change if the discount rate was 14% and the cash flows were expected to continue for 6 years?

4.

Next Level How would your answer change if management planned to implement efficiencies that would save $14,000 each year?

5.

Refer to Requirement 1 and assume that the company uses IFRS. It determines that the fair value of the equipment is $630,000 and estimates that it would cost $15,000 to sell the equipment. How much would the company recognize as the impairment loss?

Step 1: Complete the Recoverability Test below.

Question not attempted.

Score: 0/14

Borstad Company

Recoverability Test

December 31, 2016

1	Book Value:
2	Equipment
3	Less: Accumulated Depreciation
4	Book Value
5	Undiscounted expected net cash flows:
6	Undiscounted expected net cash flows