Answer:
Dr Impairment expense (p/l) $20,800
Cr Accumulated depreciation $20,800
Being entries to recognize the impairment of asset.
Explanation:
An asset is said to be impaired when the carrying amount is higher than the recoverable amount. The recoverable amount is the higher of the value in use (the expected future net cash flows from the use of the asset) and the fair value less cost to sell.
Given;
Cost = $936,000
Accumulated depreciation = $395,200
Carrying amount = $936,000 - $395,200
= $540,800
The recoverable amount is the expected future net cash flows from the use of the asset $520,000 as this is higher than the fair value of the equipment which is $416,000.
Since the carrying amount is higher than the recoverable amount, the asset is impaired.
Impairment = $540,800 - $520,000
= $20,800
The journal entries,
Dr Impairment expense (p/l) $20,800
Cr Accumulated depreciation $20,800
Being entries to recognize the impairment of asset.
