On January 1, 20x1, XYZ G Co. acquired a building for ₱4,000,000. The asset is depreciated using the straight line method over an estimated useful life of 10 years. On January 1, 20x6, the building was estimated to have a recoverable amount of ₱1,600,000. Consequently, impairment loss was recognized on that date. There was no change in the estimated useful life. On January 1, 20x9, the building was estimated to have a new recoverable amount of ₱2,400,000 and a remaining useful life of 3 years. THE BUILDING IS MEASURED UNDER THE COST MODEL. A. How much of the impairment reversal is recognized in profit or loss? B. How much of the impairment reversal is recognized in equity?
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, 20x1, XYZ G Co. acquired a building for ₱4,000,000. The asset is
On January 1, 20x6, the building was estimated to have a recoverable amount of ₱1,600,000. Consequently, impairment loss was recognized on that date. There was no change in the estimated useful life.
On January 1, 20x9, the building was estimated to have a new recoverable amount of ₱2,400,000 and a remaining useful life of 3 years. THE BUILDING IS MEASURED UNDER THE COST MODEL.
A. How much of the impairment reversal is recognized in profit or loss?
B. How much of the impairment reversal is recognized in equity?
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