Hardflex Inc. bought a building for production of XYZ product on June 30, 2017 costing P15,000,000 with an estimated useful life of 10 years and salvage value of P2,000,000. On December 31, 2018, the entity decided to classify as held for sale. The fair value of the building on that date is P13,000,000 and the cost of disposal is P300,000. On December 31, 2019, the management of the company reassessed the use of the building and has decided to use it
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Hardflex Inc. bought a building for production of XYZ product on June 30, 2017 costing P15,000,000 with an estimated useful life of 10 years and salvage value of P2,000,000. On December 31, 2018, the entity decided to classify as held for sale. The fair value of the building on that date is P13,000,000 and the cost of disposal is P300,000. On December 31, 2019, the management of the company reassessed the use of the building and has decided to use it once again for production. The fair value and cost of disposal on this date is P12,500,000 and P200,000, respectively. What is the amount of impairment loss on December 31, 2018?
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