Max Inc. purchased on January 2, 2020, equipment with a cost of $10,440,000, a useful life of 10 years and no salvage value. The Company uses straight-line depreciation. At December 31, 2020 and December 31, 2021, the company determines that impairment indicators are present. The following information is available for impairment testing at each year end: 12/31/2020 12/31/2021 Fair value less cost to sell $9,315,000 $8,350,000 Value-in-use $9,350,000 $8,315,000
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.
Max Inc. purchased on January 2, 2020, equipment with a cost of $10,440,000, a useful life of 10 years and no salvage value. The Company uses straight-line
12/31/2020 12/31/2021
Fair value less cost to sell $9,315,000 $8,350,000
Value-in-use $9,350,000 $8,315,000
There is no change in the asset’s useful life or salvage value. The 2021 income statement will report (impairment loss or recovery of impairment loss)
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
