Question: On January 1 2011 Borstad Company purchased equipment for

On January 1, 2011, Borstad Company purchased equipment for $ 1,180,000. It is depreciating the equipment over 25 years using the straight- line method and a zero residual value. Late in 2016, because of technological changes in the industry and reduced selling prices for its products, Borstad believes that its equipment may be impaired and will have a remaining useful life of 8 years. Borstad estimates that the equipment will produce cash inflows of $ 400,000 and will incur cash outflows of $ 295,000 each year for the next 8 years. It is not able to determine the fair value of the equipment based on a current selling price. Borstad’s discount rate is 12%.
1. Prepare schedules to determine whether, at the end of 2016, the equipment is impaired and, if so, the impairment loss to be recognized.
2. Prepare the journal entry to record the impairment.
3. Next Level How would your answer to Requirement 1 change if the discount rate was 16% and the cash flows were expected to continue for 6 years?
4. Next Level How would your ansx a change if management planned to implement efficiencies that would save $10,000 each year? ilk 5. Refer to Requirement 1 and assume that the company uses IFRS. It determines that the 6ir value of the equip-man is $570,000 and estimates that it would cost $17,000 to sell the equipment. How much would the company recognize as the impairment loss?

  • CreatedOctober 05, 2015
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