IMPAIRMENT LOSS

An asset is impaired if only the carrying value is > that the recoverable value.

Net recoverable value is the higher between the fair value less cost to sell or the value in use

FV less cost to sell= estimated selling price less estimated cost to sell

Value in use = PV of the future cash flows from the continued use of the asset and from its ultimate disposal
using pre-tax discount rate.

Prob. 1
MM Co. purchased a manufacturing plant building on Jan. 1, 2013 for 2,600,000. The building has been
depreciated using the SLM with a 30-year useful life and 10% residual value. MM manufacturing operations
have experienced significant losses for the past 2 years, so MM has decided that the manufacturing building
should be reevaluated for possible impairment. On Dec. 31, 2022, MM estimates the building has remaining
useful life of 15 years, and the net cash inflow from the building will be 100,000 per year and the FV less cost
to sell of the building is 760,000. What amount of impairment loss should be recognized in 2022?

Prob. 2
On Dec. 31, 2023, ZZ Co. has an equipment with the ff. cost and accumulated depreciation:
Equipment 9,000,000
Acc. Dep. 3,000,000
Due to obsolescence and physical damage, the equipment is found to be impaired. On Dec. 31, 2023, the
entity has determined the ff. information related to the equipment:
FV less cost of disposal 4,500,000
Value in use or discounted net cash inflows 4,000,000
Impairment loss for 2023 __________________

Prob. 3
MM purchased 4 new buildings on Jan, 1, 2017 for a total of 25,000,000. The buildings have been depreciated
using SLM with a 20-year life and 10% residual value. On Jan. 1, 2023, the entity has converted the buildings
into a hotel and restaurant. Because of changes in the use of the buildings, the entity is evaluating the
buildings for possible impairment. The entity estimated that the buildings have remaining useful life of 10
years, that their residual value would be zero, that the net cash inflows from the building will total 1,500,000
per year, and the current FV of the buildings totals 10,000,000. The appropriate discount rate is 12%.
Impairment loss to be recognized in 2023 ______________
Depreciation of the building for 2023 ____________________
Prob. 4
In Dec. 31, 2021, SFP of CC Inc., the equipment was reported as follows:
Equipment (at cost) 1,500,000
Acc. Depreciation 450,000
The equipment consisted of two machines: machine A and B.
Machine A had a book value of 540,000 at Dec. 31, 2021 (cost 900,000), while machine B was carried at
510,000 (cost 600,000). CC depreciates its equipment over a 10 year period using the SLM.

On June 30, 2022, CC change the basis of measuring the equipment from the cost method to revaluation
model. Machine A was revalued to 540,000 with an expected useful life of 6 years, and machine B was
revalued to 465,000 with an expected useful life of 5 years.

On Dec. 31, 2023, machine A was assessed to have a fair value of 489,000 with an expected useful life of 5
years, while machine B has a fair value of 409,500 with useful life of 4 years.

1. Revaluation increase/(decrease) should be recognized for machine A and machine B on June 30, 2022.
2. Depreciation expense to be reported on CC’s IS for the year ended Dec. 31, 2023 for machine A and B.
3. Revaluation increase/(decrease) should be recognized for machine A and machine B on Dec. 31, 2023.

Prob. 5.
On Jan. 1, 2021, KK acquired factory equipment at a cost of 150,000. The equipment is being depreciated
using the SLM over its projected useful life of 10 years. On Dec. 31, 2022, a determination was made that the
asset’s recoverable amount was only 96,000. Assume that this was properly computed and that recognition of
impairment was warranted. On Dec. 31, 2023, the asset’s recoverable amount was determined to be 111,000
and mgt. believes that the impairment loss previously recognized should be reversed.

Impairment loss to be recognize on Dec. 31, 2022 ______________

Asset’s CA on Dec. 31, 2023 _________________
Asset’s CA at Dec. 31, 2023 had the impairment not been recognized in 2022 _______________
Impairment recovery should be reported in the 2023 IS _______________________