Question
The information that follows relates to equipment owned by Buffalo Limited at December 31, 2020: Cost$8,190,000 Accumulated depreciation to date910,000 Expected future net cash flows
The information that follows relates to equipment owned by Buffalo Limited at December 31, 2020:
Cost$8,190,000
Accumulated depreciation to date910,000
Expected future net cash flows (undiscounted)6,370,000
Expected future net cash flows (discounted, value in use)5,778,500
Fair value5,642,000
Costs to sell (costs of disposal)45,500
At December 31, 2020, Buffalo discontinues use of the equipment and intends to dispose of it in the coming year by selling it to a competitor. It is expected that the costs of disposal will total $45,500.
Assume that Buffalo is a private company that follows ASPE.
1.
Prepare the journal entry at December 31, 2020, to record asset impairment, if any.
2.
Prepare the journal entry to record depreciation expense for 2021.
3.
Assume that the asset was not sold by December 31, 2021. The equipment's fair value (and recoverable amount) on this date is $5.92 million. Prepare the journal entry, if any, to record the increase in fair value. It is expected that the costs of disposal will total $45,500.
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