The management of Sprague Inc. was discussing whether certain equipment should be written off as a charge

Question:

The management of Sprague Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2022. On December 31, 2022, management projected the present value of future net cash flows from this equipment to be $300,000 and its fair value less cost of disposal to be $280,000. The company intends to use this equipment in the future. The remaining useful life of the equipment is 4 years. 


Instructions

a. Prepare the journal entry (if any) to record the impairment at December 31, 2022.

b. Where should the gain or loss (if any) on the write-down be reported in the income statement?

c. At December 31, 2023, the equipment’s recoverable amount is $270,000. Prepare the journal entry (if any).

d. What accounting issues did management face in accounting for this impairment?

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Related Book For  book-img-for-question

Intermediate Accounting IFRS

ISBN: 9781119607519

4th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

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