Question

(150,000 -- 30,000) = 24000 every year. 2000 - 2. Depreciation 41000x6/12 =1000 Able purchased a machine for $150,000 on March 1, 2017. The asset has a 5 year life and a $30,000 salvare value. The half year assumption will be used for financial and tax depreciation. Financial reporting will use straight-line depreciation, DDBx (double declining with a switch to straight) will be used for tax purposes. Calculate depreciation for 2017 and 2018 in the space provided below: 2017 2018 2020 Straight line 100 000 4000 DDBX 94.000 Assume that income prior to considering tax and depreciation on the machine is $100,000 in 2018, Record the 2018 provision for tax using a 30% tax rate: Debit Credit Assume that income prior to considering tax and depreciation on the machine is $100,000 in 2020, Record the 2020 provision for tax using a 30% tax rate: Debit Credit Assume that the machine appears to be impaired as of Dec. 31, 2018. Projected cash flows are $20,000 for 4 years. The normal earning rate for such assets is 9% annual Is the asset impaired? - Numerical support required. if it is impaired, calculate the impairment loss.

Answer 1

Ans: Calculate straight line depreciation: . Straight line depreciation = 1 (Cost of Asset - Salvage Value) Life Of Assets (150000-30000) =$24,000 Calculate double declining depreciation: 100 Double Declining Method=- Number of years 100 Rate of Depreciation = 5 = 20% Double the Straight Line rate of depreciation = 20%x2 = 40%

Book Value At The Beginning Depreciation Book Value At The end Years B=AX 40% C=A-B $150,000 $60,000 $90,000 $90,000 $36,000 $54,000 $54,000 $21,600 $32,400 $32,400 $1,200 $31,200 $31,200 $1,200 $30,000 Depreciation 2017 $24.000 $60,000 Straight Line Method Double Declining Method 2018 $24.000 $36,000 2020 $24.000 $1,200

2) Calculate provision fot income tax (Tax is 100,000 in 2018) Particulars Amount Income $100,000 Less: Depreciation $36.000 Net Profit Before Tax $64,000 Less: Tax $19,200 Net Profit After Tax $44.800 Date Credit counts title and explanat Debit Income Tax Expenses . $19,200) Provision For Income Tax (Being Provision made for income tax ) $19,200

3) Calculate provision fot income tax (Tax is 100,000 in 2020) Particulars Amount Income $100.000 Less: Depreciation $1,200 Net Profit Before Tax $98.800 Less: Tax $29,640 Net Profit After Tax $69.160 Date Credit Debit | $29,640 Accounts title and explanation Income Tax Expenses To Provision For Income Tax (Being Provision made for income tax ) $29,640

4) Calculation of carrying value; Carrying value=Cost of Acquisition - (Depreciation expense x 2 year) = $150,000 - ($24,000 x2) = $150,000 - $48,000 = $102,000 Therefore, the calculated carrying value is $102,000. Calculation of present value of machine; Present value =Cash flow for 4 year>Present Value Annuity Factor =$20,000 3.2397 = $64,794 Therefore, the calculated present value of machine is $64,794.

Calculation of present value of salvage; Present value of salvage=Salvage Value>Present Value Annuity Factor =$30,000x0.65 =$19,500 Therefore, the calculated present value of salvage is $19,500. Calculation of total recoverable value; Total recoverable value=Present value of machine+Present value of salvage =$64,794+$19,500 =$84,294 Therefore, the calculated total recoverable value is $84,294.

Calculation of impairment loss; Impairment Loss=Carrying value-Total recoverable value =$102,000-$84,294 =$17,706 Therefore, the calculated impairment loss is $17,706.