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A 1

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Uploaded by

Appe Dunn
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P11.

9 (LO3) (Impairment) Roland SE uses special strapping equipment in its packaging


business. The equipment was purchased in January 2018 for €10,000,000 and had an
estimated useful life of 8 years with no residual value. At December 31, 2019, new
technology was introduced that would accelerate the obsolescence of Roland's equipment.
Roland's controller estimates that the present value of expected future net cash flows on the equipment
will be €5,300,000 and that the fair value less costs to sell the equipment will be €5,600,000. Roland
intends to continue using the equipment, but it is estimated that the
remaining useful life is 4 years. Roland uses straight-line depreciation.
Instructions
a. Prepare the journal entry (if any) to record the impairment at December 31, 2019
(depreciation for 2019 has been recorded).
b. Prepare any journal entries for the equipment at December 31, 2020. The recoverable
amount of the equipment at December 31, 2020, is estimated to be €4,900,000.
c. Repeat the requirements for (a) and (b), assuming that Roland intends to dispose of the
equipment and that it has not been disposed of as of December 31, 2020

P11.13 (LO5, 7) (Revaluations) Wang Ltd. owns land (cost HK$200,000) for which it uses
revaluation accounting. It has the following information related to this asset, the only land
asset that Wang owns.
Date Fair Value
January 1, 2018 HK$200,000
December 31, 2018 215,000
December 31, 2019 185,000
December 31, 2020 205,000
Instructions
a. Prepare all entries related to the land for 2018.
b. Determine the amounts to be reported by Wang at December 31, 2019 and 2020, as
Land, Other Comprehensive Income, Impairment Loss, and Accumulated Other
Comprehensive Income.
c. Prepare the entry for any revaluation adjustments at December 31, 2019 and 2020.
d. Prepare the entries for the sale of the property by Wang on January 15, 2021, for
HK$220,000.

(a) Carrying value of asset: $10,000,000 – $2,500,000* = $7,500,000.


*($10,000,000 ÷ 8) X 2
Recoverable amount ($5,600,000) < Carrying value ($7,500,000)
Impairment entry:
Loss on Impairment .............................................. 1,900,000*
Accumulated Depreciation— Equipment................................................. 1,900,000
*$7,500,000 – $5,600,000
(b) Depreciation Expense .......................................... 1,400,000**
Accumulated Depreciation—Equipment................................................. 1,400,000
**($5,600,000 ÷ 4)
Accumulated Depreciation—Equipment........ 700,000
Recovery of Impairment Loss................. 700,000
$4,900,000 – ($5,600,000 –$1,400,000)
(c) No depreciation is recorded on impaired assets to be disposed of.
Recovery of impairment losses are recorded.
12/31/10 Loss on Impairment.................................... 1,900,000
Accumulated Depreciation—Equipment ....................................... 1,900,000
12/31/11 Loss on Impairment.................................... 700,000
Accumulated Depreciation—Equipment ($5,600,000 –$4,900,000)........................ 700,000

(a) December 31, 2009


Land ($215,000 – $200,000)....................................... 15,000
Unrealized Gain on Revaluation—Land..... 15,000
(b) Dec. 31, 2010 Dec. 31, 2011
Land $185,000 $205,000
Other Comprehensive Income (15,000) 5,000
Impairment Loss (15,000) 15,000
Accumulated Other Comprehensive
Income — 5,000
(c) December 31, 2010
Unrealized Gain on Revaluation—Land ............... 15,000
Loss on Impairment .................................................... 15,000
Land ($215,000 – $185,000) ............................ 30,000
December 31, 2011
Land ($205,000 – $185,000)....................................... 20,000
Recovery of Impairment Loss ....................... 15,000
Unrealized Gain on Revaluation—Land..... 5,000
(d) January 15, 2012
Cash ................................................................................. 220,000
Land ....................................................................... 205,000
Gain on Disposal of Land ............................... 15,000
Accumulated Other Comprehensive Income ..... 5,000
Retained Earnings............................................. 5,000

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