Answer:
Depreciation $ 1,000,000 (debit)
Accumulated Depreciation $ 1,000,000 (credit)
Explanation:
<em>Step 1 Analyse whether there was an impairment </em>
Impairment of an asset happens when its Carrying Amount is greater than its Recoverable Amount.
<u><em>Carrying Amount</em></u>
Carrying Amount = Cost - Accumulated depreciation
= $5,600,000 - $640,000
= $ 4,960,000
<em><u>Recoverable Amount</u></em>
Is the higher of :
- Value in use : $4,000,000 and
- Fair Value less Cost to sell $2,720,000
Therefore Recoverable Amount is $4,000,000
<em><u>Impairment</u></em>
Carrying Amount > Recoverable Amount, therefore the Equipment Was impaired
The impairement loss is $ 960,000
<em>Step 2 Calculate the depreciation 2018.</em>
Depreciation Charge = Cost / Useful life
= ($5,600,000 - $640,000 - $ 960,000) / 4
= $ 1,000,000
<u>Journal</u>
Depreciation $ 1,000,000 (debit)
Accumulated Depreciation $ 1,000,000 (credit)
