On January 1, 2020 Hill Bowling purchased equipment for $3.5 million. The equipment is being depreciated by the straight-line method over 10 years with no residual value. On December 31, 2024, new advanced bowling equipment has come on the market. As a result, Hill believes the bowling equipment currently being used is going to become obsolete quicker than anticipated, so Hill wants to complete an impairment test on that equipment. Hill estimates that the net cash flows from using the current equipment will be $250,000 per year for the next five years. Hill also expects it could sell the current equipment immediately for $25,000. Hill uses a 14% discounted rate to evaluate other projects of this nature. Required: Complete the Impairment test for Hill Bowling. PV of $1 .519 PV of an annuity of $1 3.433 FV of $1 1.925 FV of an annuity of $1 6.610
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.
On January 1, 2020 Hill Bowling purchased equipment for $3.5 million. The equipment is being
Required:
Complete the Impairment test for Hill Bowling.
PV of $1 .519
PV of an annuity of $1 3.433
FV of $1 1.925
FV of an annuity of $1 6.610
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