Example 1 - SOLUTION

On August 1, Y2, Aylmer Inc purchased a new machine for $603,000 with an estimated useful life of 10 years.
The residual value is expected to be $48,000.

During it's lifetime, the machine is expected to produce 444,000 units.

During Y2, it producted 20,000 units and in Y3, it produced 30,000 units.

The machine is subject to a 20% CCA rate.

REQUIRED:
Calculate the depreciation for Y2 and Y3 using the straight-line method.
Calculate the depreciation for Y2 and Y3 using the actvitity based method.
Calculate the depreciation for Y2 and Y3 using the double-declining method.
Calculate the depreciation for Y2 and Y3 using the CCA rate.

Straight Line Activity Based (units)

Cost 603,000 Cost 603,000

residual 48,000 residual 48,000
Depreciable amount 555,000 Depreciable amount 555,000
Useful life 10 years Useful life 444,000
Annual depreciation 55,500 Rate per unit 1.25

Y2 23,125 5/12 Y2 20,000 25,000

Y3 55,500 Y3 30,000 37,500

Double Declining Double Declining

Base 10% Base 20%

useful life years
"Double" 2
Annual rate 20%

Y2 120,600 Y2 60,300
Y3 96,480 Y3 108,540
units
Example 2 - SOLUTION

Aylmer Inc purchased a machine on September 1, Y2 for $358,200. The machine is expected
to have a useful life of 10 years and a residual value of $58,200.

Straight-line depreciation was recorded to each Dec 31 year-end to December 31, Y6.
On January 1, Y7, the machine's residual value was re-assessed to $17,000 at the end of Y9.

REQUIRED
Prepare the journal entry to record depreciation at the end of Y7.

Date Debit Credit

Depreciation Expense - Machine 70,400
12/31/Y7
Accumulated Depreciation - Machine 70,400

Original Cost 358,200 Y2 10,000

Original residual value 58,200 Y3 30,000
300,000 Y4 30,000
Useful life 10 years Y5 30,000
Annual Depreciation 30,000 Y6 30,000
130,000

Jan 1 Y7 Carrying Value:

Original Cost 358,200
Accumulated Depreciation 130,000
Carrying/Book Value 228,200
Revised residual value 17,000
211,200
Updated remaining useful life 3 years
70,400
Example 3 - SOLUTION

London Inc decided to sell one of its buildings: London Inc decided to sell one of

Original Purchase price 7,920,000 Original Purchase pric

purchased 5 years ago purchased
Useful life 30 year Useful life
Residual Value - Residual Value
Selling price 6,750,000 cash Selling price

REQUIRED REQUIRED
Prepare the journal entry to record the sale Prepare the journal entry to reco

Date Debit Credit Date

Cash 6,750,000 Cash
Accumulated Depreciation - Bulding 1,320,000 Accumulated Deprecia
Sale Sale
Gain on sale 150,000 Loss on Sale
Building 7,920,000 Building

Original Cost 7,920,000 Original Cost

Original residual value - Original residual value
7,920,000
Useful life 30 years Useful life
Annual Depreciation 264,000 Annual Depreciation

number of years owned 5 number of years owne

c decided to sell one of its buildings: London Inc decided to sell one of its buildings:

Original Purchase price 7,920,000 Original Purchase price

purchased 5 years ago purchased
Useful life 30 year Useful life
Residual Value - Residual Value
Selling price 6,250,000 cash Selling price

REQUIRED
he journal entry to record the sale Prepare the journal entry to record the sale

Debit Credit Date

Cash 6,250,000 Cash
Accumulated Depreciation - Bulding 1,320,000 Accumulated Depreciation - Bulding
Sale
Loss on Sale 350,000
Building 7,920,000 Building

Original Cost 7,920,000 Original Cost

Original residual value - Original residual value
7,920,000
Useful life 30 years Useful life
Annual Depreciation 264,000 Annual Depreciation

number of years owned 5 number of years owned

of its buildings:

7,920,000
5 years ago
30 year
-
6,600,000 cash

ecord the sale

Debit Credit
6,600,000
ciation - Bulding 1,320,000

7,920,000

7,920,000
-
7,920,000
30 years
264,000

5
Example 4 - SOLUTION

The details of the January 1, Y4 purchase of property, plant & equipment by Thomas Industries is as follows:

Cost Residual Useful Life Depreciation

Value Method
Machinery $1,236,000 $96,000 1 million units Activity Method
Building $903,000 $93,000 30 years Straight line
Computer $172,500 $12,000 5 years Double-Declining-Balance

During Y4 Riverbed produced 196,000 units using its machinery.

REQUIRED
Calculate the Y4 depreciation for each of the above items

Machinery Building

Cost 1,236,000 Cost

residual 96,000 residual
Depreciable amount 1,140,000 Depreciable amount
Useful life 1,000,000 units Useful life
Rate per unit $ 1.14 Annual depreciation

Y4 223,440 Y4
 Computer

903,000 Base 20%

93,000 useful life - years
Depreciable amount 810,000 "Double" 2
Useful life 30 years Annual rate 40%
Annual depreciation 27,000

27,000 Y2 69,000
Example 5 - SOLUTION

Aylmer Inc follows ASPE

The following information is available:

Cost 920,000
Accumulated Depreciation 360,000

Undiscounted future cash flow 522,000

Fair value 400,000

REQUIRED
Using the cost recovery impairment model, prepare the journal entry, if any, to record the impairment loss

Date Debit Credit

Loss on Impairment 160,000
Accumulated Impairment Loss 160,000

Undiscounted future cash flow 522,000

Carrying Value 560,000

Since Undiscounted cash flow < Carrying Value = IMPAIRMENT

Fair value 400,000 IMPAIR to Fair Value

REMEMBER - under cost recovery impairment model - there is no recovery of a past impairment loss
mpairment loss

pairment loss
Example 6 - SOLUTION

Aylmer Inc follows IFRS.

On Dec 31, Y2 - carrying value of land 525,000

Value in Use 450,000

FV less cost to sell 400,000

REQUIRED
Using the rational entity impairment model, prepare the journal entry required, if any, to record the impairment loss
Due to an economic rebound in the area, by the end of the following year the land has a value in use of $565,000 and fa
value less costs of disposal of $480,000. Prepare the journal entry required, if any, to record the increase in its
recoverable amount.

Date Debit Credit Date

Loss on Impairment 75,000
Y2 Y3
Accumulated Impairment Loss - Land 75,000

The recoverable amount is the higher of:

Value in Use 450,000 higher

FV less cost to sell 400,000

Carrying Value 525,000

Recoverable amount 450,000
Impairment 75,000
 cord the impairment loss
alue in use of $565,000 and fair
rd the increase in its

Debit Credit
Accumulated Impairment Loss - Land 75,000
Recovery of Loss from Impairment 75,000

The recoverable amount is the higher of:

Value in Use 565,000 higher

FV less cost to sell 480,000

Carrying Value 450,000

Recoverable amount 565,000
Recovery 115,000

HOWEVER - MAX - is the original cost of 525,000

Example 7 - SOLUTION

Aylmer Inc follows ASPE

The following information is available:

Cost 950,000
Accumulated Depreciation 370,000

Undiscounted future cash flow 310,000

Fair value 220,000

REQUIRED
Using the cost recovery impairment model, prepare the journal entry, if any, to record the impairment loss
If the Fair Value increases to $270,000 - what is the entry?

Date Debit Credit

Loss on Impairment 360,000
Accumulated Impairment Loss 360,000

Undiscounted future cash flow 310,000

Carrying Value 580,000

Since Undiscounted cash flow < Carrying Value = IMPAIRMENT

Fair value 220,000 IMPAIR to Fair Value

REMEMBER - under cost recovery impairment model - there is no recovery of a past impairment loss
mpairment loss

pairment loss
Example 8 - SOLUTION

A company has the following information at December 31, Y4 relating to equipment owned

Cost 6,840,000
Accumulated depreciation 760,000
Undiscounted cash flow 5,320,000
Value in use 4,826,000
Fair value 4,712,000
Cost to sell/dispose 38,000
Remaining useful life 4 years
Uses the straight-line method of depreciation

REQUIRED
If the company uses ASPE, prepare the journal entry for impairment at December 31,Y4 if any.
Prepare the depreciation expense for Y5
If at December 31, Y5, the fair value is $4,949,000, prepare the entry if any.

Date Debit Credit

Loss on Impairment 1,368,000
12/31/Y4
Accumulated Impairment Loss - Equipment 1,368,000

Cost 6,840,000
Accumulated Depreciation 760,000
Carrying value 6,080,000

Undiscounted cash flow 5,320,000

Carrying Value 6,080,000

Since UDCF < CV = IMPAIRMENT

Fair Value 4,712,000

Date Debit Credit

Depreciation Expense - Machine 1,178,000
12/31/Y5
Accumulated Depreciation - Machine 1,178,000

New Carrying Value 4,712,000

Useful Life 4
1,178,000
 Date Debit Credit
-
12/31/Y5
-

NO ENTRY - under cost recovery impairment model - NO RECOVERY is allowed

Example 9 - SOLUTION

A company has the following information at December 31, Y4 relating to equipment owned

Cost 6,840,000
Accumulated depreciation 760,000
Undiscounted cash flow 5,320,000
Value in use 4,826,000
Fair value 4,712,000
Cost to sell/dispose 38,000
Remaining useful life 4 years
Uses the straight-line method of depreciation

REQUIRED
If the company uses IFRS, prepare the journal entry for impairment at December 31,Y4 if any.
Prepare the depreciation expense for Y5
If at December 31, Y5, the fair value is $4,940,000, prepare the entry if any.

Date Debit Credit

Loss on Impairment 1,254,000
12/31/Y4
Accumulated Impairment Loss - Equipment 1,254,000

Cost 6,840,000
Accumulated Depreciation 760,000
Carrying value 6,080,000

Recoverable Amount:
Value in Use 4,826,000
FV - Cost to sell 4,674,000

Impairment 1,254,000

Date Debit Credit

Depreciation Expense - Machine 1,206,500
12/31/Y5
Accumulated Depreciation - Machine 1,206,500

New Carrying Value 4,826,000

Useful Life 4
1,206,500
 Date Debit Credit
Accumulated Impairment Loss - Equipment 940,500
12/31/Y5
Recovery of Loss from Impairment 940,500

Compare with impairment/without impairment - to determine max recovery

With impairment Without impairment

Adjusted Carrying Value 4,826,000 Adjusted Carrying Value

Accumulated Depreciation 1,206,500 Accumulated Depreciation
Carrying Value 3,619,500 Carrying Value

New Fair Value 4,940,000 HOWEVER - can only recover to what the CV would have been W

Recovery 1,320,500 Recovery

 6,080,000
1,520,000 1,520,000
4,560,000

hat the CV would have been WITHOUT IMPAIRMENT

940,500
Example 10 - SOLUTION

A company has the following information at December 31, Y4 relating to equipment owned

Cost 7,200,000
Accumulated depreciation 800,000
Undiscounted cash flow 5,600,000
Value in use 5,080,000
Fair value 4,960,000
Cost to sell/dispose 40,000
Remaining useful life 4 years
Uses the straight-line method of depreciation

REQUIRED
If the company uses ASPE, prepare the journal entry for impairment at December 31,Y4 if any.
Prepare the depreciation expense for Y5
If at December 31, Y5, the fair value is $5,200,000, prepare the entry if any.

Date Debit Credit

Loss on Impairment 1,440,000
12/31/Y4
Accumulated Impairment Loss - Equipment 1,440,000

Cost 7,200,000
Accumulated Depreciation 800,000
Carrying value 6,400,000

Undiscounted cash flow 5,600,000

Carrying Value 6,400,000

Since UDCF < CV = IMPAIRMENT

Fair Value 4,960,000

Date Debit Credit

Depreciation Expense - Machine 1,240,000
12/31/Y5
Accumulated Depreciation - Machine 1,240,000

New Carrying Value 4,960,000

Useful Life 4
1,240,000
 Date Debit Credit
-
12/31/Y5
-

NO ENTRY - under cost recovery impairment model - NO RECOVERY is allowed

Example 11 - SOLUTION

A company has the following information at December 31, Y4 relating to equipment owned

Cost 7,200,000
Accumulated depreciation 800,000
Undiscounted cash flow 5,600,000
Value in use 5,080,000
Fair value 4,960,000
Cost to sell/dispose 40,000
Remaining useful life 4 years
Uses the straight-line method of depreciation

REQUIRED
If the company uses IFRS, prepare the journal entry for impairment at December 31,Y4 if any.
Prepare the depreciation expense for Y5
If at December 31, Y5, the fair value is $5,200,000, prepare the entry if any.

Date Debit Credit

Loss on Impairment 1,320,000
12/31/Y4
Accumulated Impairment Loss - Equipment 1,320,000

Cost 7,200,000
Accumulated Depreciation 800,000
Carrying value 6,400,000

Recoverable Amount:
Value in Use 5,080,000
FV - Cost to sell 4,920,000

Impairment 1,320,000

Date Debit Credit

Depreciation Expense - Machine 1,270,000
12/31/Y5
Accumulated Depreciation - Machine 1,270,000

New Carrying Value 5,080,000

Useful Life 4
1,270,000
 Date Debit Credit
Accumulated Impairment Loss - Equipment 990,000
12/31/Y5
Recovery of Loss from Impairment 990,000

Compare with impairment/without impairment - to determine max recovery

With impairment Without impairment

Adjusted Carrying Value 5,080,000 Adjusted Carrying Value

Accumulated Depreciation 1,270,000 Accumulated Depreciation
Carrying Value 3,810,000 Carrying Value

New Fair Value 5,200,000 HOWEVER - can only recover to what the CV would have been W

Recovery 1,390,000 Recovery

 6,400,000
1,600,000 1,600,000
4,800,000

hat the CV would have been WITHOUT IMPAIRMENT

990,000