Cream Company had a machinery costing, P3,000,000 when purchased on January 2, 2009. Estimated useful life...

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Cream Company had a machinery costing, P3,000,000 when purchased on January 2, 2009. Estimated useful life of the asset was for 20 years with no salvage value at the end of its useful life. Cream uses the straight-line method of depreciation. On January 2, 2014, Cream is evaluating the machinery for possible impairment. The machinery has a remaining useful life of 5 years and is expected to generate cash inflows of P500,000 per year and the company also expects to realize P200,000 from sale on the eventual disposal at the end of the fifth year. Cream has determined that the rate implicit in current market transaction for similar asset is 10%. Available information as of January 2, 2014 also showed that the appropriate market price for the same asset is P2,000,000. Estimated cost of disposal, P150,000. What amount of impairment loss, if any, is to be recognized? Cream Company had a machinery costing, P3,000,000 when purchased on January 2, 2009. Estimated useful life of the asset was for 20 years with no salvage value at the end of its useful life. Cream uses the straight-line method of depreciation. On January 2, 2014, Cream is evaluating the machinery for possible impairment. The machinery has a remaining useful life of 5 years and is expected to generate cash inflows of P500,000 per year and the company also expects to realize P200,000 from sale on the eventual disposal at the end of the fifth year. Cream has determined that the rate implicit in current market transaction for similar asset is 10%. Available information as of January 2, 2014 also showed that the appropriate market price for the same asset is P2,000,000. Estimated cost of disposal, P150,000. What amount of impairment loss, if any, is to be recognized?

Answer rating: 100% (QA)

To determine the impairment loss we need to compare the carrying amount of the machinery with its re... View the full answer