At December 31, Year 5, Aaron Co. had the following property, plant, and equipment:AssetFair ValueCost to SellPresent Value of All Cash Flows Expected from the AssetSum of All Undiscounted Cash Flows Expected from the AssetUseful Life from the Acquisition Date (Depreciation Method)Residual ValueEquipment$220,000$5,000$230,000$255,0006 years (Straight Line)$0Machine set  310,000  8,000  320,000  335,000  4 years (SYD)  0Land  660,000  9,000  600,000  640,000  Determine the impairment losses recognized for Year 5 under U.S. GAAP and IFRS. Enter the appropriate amounts in the designated cells below. Enter all amounts as positive numbers. If the correct answer is zero, enter a zero (0).Purchase Receipt 3 - LandPurchase Date: 1/1/Year 3Purchase Amount: $650,000Purchase Receipt 2 - Machine SetPurchase Date: 1/1/Year 5Purchase Amount: $600,000Purchase Receipt 1 - EquipmentPurchase Date: 7/1/Year 2Purchase Amount: $600,000

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Asked Sep 23, 2019
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At December 31, Year 5, Aaron Co. had the following property, plant, and equipment:

Asset Fair Value Cost to Sell Present Value of All Cash Flows Expected from the Asset Sum of All Undiscounted Cash Flows Expected from the Asset Useful Life from the Acquisition Date (Depreciation Method) Residual Value
Equipment $220,000 $5,000 $230,000 $255,000 6 years (Straight Line) $0
Machine set   310,000   8,000   320,000   335,000   4 years (SYD)   0
Land   660,000   9,000   600,000   640,000    

Determine the impairment losses recognized for Year 5 under U.S. GAAP and IFRS. Enter the appropriate amounts in the designated cells below. Enter all amounts as positive numbers. If the correct answer is zero, enter a zero (0).

Purchase Receipt 3 - Land

Purchase Date: 1/1/Year 3

Purchase Amount: $650,000

Purchase Receipt 2 - Machine Set

Purchase Date: 1/1/Year 5

Purchase Amount: $600,000

Purchase Receipt 1 - Equipment

Purchase Date: 7/1/Year 2

Purchase Amount: $600,000

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Expert Answer

Step 1

 Calculate carrying value of assets:

 

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PurchaseAccumulated depreciation price $600,000 $600,000/6*3.5 S350,000 Carrying value Asset $250,000 $360,000 Equipment Machine Set $600,000 $600,000/10*4 = $240,000 Land $650,000 NA S650,000

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Step 2

Calculate impairment loss under US GAAP:

 

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Test 2: Impairment loss Carrying value-[Higher of discounted Test 1: Carrying value> undiscounted future cash flows future cash flows or fair value] Asset Note: Cost of disposal is prohibited in US GAAP No [S250,000 is not more than $250,000] Yes[S360,000 S335,000] Yes [$650,000> $640,000] NA Equipment Machine set $360,000 $320,000 S40,000 NA

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Step 3

Calculate impairment loss under IFRS...

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Recoverable amount (Higher of Impairment loss [Carrying value-recoverable (if carrying value more than recoverable amount) discounted Assets cash flow or fair value less cost of disposal) $230,000 $20,000 $40,000 Equipment Machine set S320,000 Land $651,000 NA

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