Question

The information that follows relates to equipment owned by Waterway Limited at December 31, 2020:

Cost		$8,550,000
Accumulated depreciation to date		950,000
Expected future net cash flows (undiscounted)		6,650,000
Expected future net cash flows (discounted, value in use)		6,032,500
Fair value		5,890,000
Costs to sell (costs of disposal)		47,500

At December 31, 2020, Waterway 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 $47,500.

Part 1

Assume that Waterway is a private company that follows ASPE. (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 0 for the amounts.)

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 $6.18 million. Prepare the journal entry, if any, to record the increase in fair value. It is expected that the costs of disposal will total $47,500.

No.	Account Titles and Explanation	Debit	Credit
(1)	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
(2)	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
(3)	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount

eTextbook and Media

List of Accounts

Part 2

Repeat the requirements in (a) above assuming that Waterway is a public company that follows IFRS, and that the asset meets all criteria for classification as an asset held for sale. (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 0 for the amounts.)

	Account Titles and Explanation	Debit	Credit
(1)	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
(2)	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
(3)	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount

Answer 1

A В C D E G 1 PART 1 Particulars Debit 2 Date Credit Cost 8550000 950000 5890000 1 Loss on impairment 1710000 Less: Accumulated depreciation 1710000 Accumulated Depreciation Less: Fair value 4 Loss on impairment 1710000 5 1472500 2 Depreciation 7 Accumulated Depreciation 1472500 8 10 3 No entry 11 Future cash flows (undiscounted) Less:Costs to sell (costs of disposal) 6650000 47500 12 13 Accumulated Depreciation 712500 Less: Fair value 5890000 14 PART 2 Recovery of loss on Impairment Recovery of loss on Impairment 712500 712500 15 16 17 19

A. C E F G 1 PART 1 Debit +G5 8550000 950000 5890000 +G2-G3-G4 Particulars Credit Cost 2 Date Loss on impairment Accumulated Depreciation Less: Accumulated depreciation Less: Fair value Loss on impairment 3 1 =+C3 5 6 =+G4/4 = +C7 72 Depreciation Accumulated Depreciation 9 10 No entry 11 3 Future cash flows (undiscounted) Less:Costs to sell (costs of disposal) 47500 Less: Fair value Recovery of loss on Impairment 6650000 12 13 5890000 =+G12-G13-G14 14 PART 2 Accumulated Depreciation +G15 =+G15 Recovery of loss on Impairment 15 16 47. CO st LO