Arnison Corp. purchased land and a building on May 1, 2011, for $385,000. The company paid $115,000 in cash and signed a 5% note payable for the balance. The note is due on February 1, 2013. At that time, Arnison estimated that the land was worth $150,000 and the building $235,000. The building was estimated to have a 25-year useful life with a $35,000 residual value. The company has a December 31 year end and uses the single diminishing-balance depreciation method (where the rate is 1 ÷ the life of the asset) for buildings. The following are related transactions and adjustments during the next three years:

2011 Dec. 31Recorded the annual depreciation.

31 Paid the interest owing on the note payable.

2012 Feb. 17 Paid $225 to have the furnace cleaned and serviced.

Dec. 31 Recorded the annual depreciation.

31 Paid the interest owing on the note payable.

31 The land and building were tested for impairment. The land had a recoverable amount of $120,000 and the building $240,000.

2013

Jan. 31 Sold the land and building for $320,000 cash-$110,000 for the land and $210,000 for the building.

Feb. 1 Paid the note payable and interest owing.

Instructions

(a) Record the above transactions and adjustments.

(b) What factors may have been responsible for the impairment?

(c) Assume instead that the company sold the land and building on January 31, 2013, for $400,000 cash-$160,000 for the land and $240,000 for the building. Record the journal entry (or entries) to record the sale.

(d) Now assume that the land and building were not sold in 2013 and that by the end of December 31, 2013, the fair values of each were $160,000 and $240,000, respectively. At the end of the year, could the impairment loss recorded in 2012 be reversed under IFRS if the cost model were used? Could it be reversed if the revaluation model were used? Could it be reversed under ASPE?