Assume the same information as in EII-20, except that at December 31, 2014, Gaurav discontinues use of the equipment and intends to dispose of it in the coming year by selling it to a competitor. It is expected that the costs of disposal will total $50,000.
In exercise
The information that follows relates to equipment owned by Gaurav Limited at December 31, 2014:
Cost ............................ $9,000,000
Accumulated depreciation to date ............... 1,000,000
Expected future net cash flows (undiscounted) ........... 7,000,000
Expected future net cash flows (discounted, value in use) ..... 6,350,000
Fair value ........................ 6,200,000
Costs to sell (costs of disposal) ................. 50,000
Assume that Gaurav will continue to use this asset in the future. As at December 3I, 20I4, the equipment has a remaining useful life of four years. Gaurav uses the straight-line method of depreciation.
Instructions
(a) Assume that Gaurav is a private company that follows ASPE.
1. Prepare the journal entry at December 31, 2014, to record asset impairment, if any.
2. Prepare the journal entry to record depreciation expense for 2015.
3. Assume that the asset was not sold by December 31, 2015. The equipment's fair value (and recoverable amount) on this date is $6.5 million. Prepare the journal entry, if any, to record the increase in fair value. It is expected that the costs of disposal will total $50,000.
4. Identify where, and at what amount, the asset will be reported on the December 31, 2015 statement of financial position.
(b) Repeat the requirements in (a) above assuming that Gaurav is a public company that follows IFRS, and that the asset meets all criteria for classification as an asset held for sale.