Anvil Ltd. (Anvil) follows IFRS when preparing its financial statements. For each of the following independent situations, explain how Anvil should account for the transaction or economic event. Explain your reasoning. In each case, provide the journal entry that Anvil should prepare.
a. A piece of equipment purchased for $25,000 was destroyed in an accident during initial installation. The equipment had not yet been depreciated.
b. Inventory with a cost of $100,000 has gone out of style and it will have to be sold at a discount. Management estimates that Anvil will be able to sell the inventory for $60,000.
c. Equipment used by one of the divisions of Anvil has become technologically obsolete because there is a new generation of equipment that is more efficient and produces higher quality output. Anvil’s existing equipment can still be used (it still functions) but is used infrequently because of the lower quality output it produces.
d. Last year, Anvil loaned $300,000 to a biotechnology company. Last week, the bio-technology company announced it was bankrupt and would be liquidating all of its assets and going out of business. Anvil doesn’t expect to receive anything from the biotechnology company for the loan.