On recognition of an Impairment, what happens to the accumulated depreciation when the asset is written down to the new carrying value?
Thanks.
M
munie·
Good day
May I please understand why in the computation of value in use we used 5000*3.791
and why did we not use the formula C(1+10%)^5
Thank you in advance for the answer
M
Mahgalathen·
I believe we are discounting the future cash flows to present value for the VIU. Your formula is based on inflating the value.
S
sagarsingh·
After using the given formula, I believe the answer still remains the same. They have directly given the annuity factor.
P
PartyKat·
1 / (1 x (1 + 10%) ^ n) - is a discounting factor. Considering the fact that we expect to receive 5,000 each year, discount factor will also be different for each year:
Year 1 - 0.909090909
Year 2 - 0.826446281
Year 3 - 0.751314801
Year 4 - 0.683013455
Year 5 - 0.620921323
Then each factor is multiplied by 5,000 for each year, then summed and it gives us the same 18,955.
Annuity factor, in contrast, already counts the fact that we receive this 5,000 annually for 5 years: =(1-(1+10%)^-5)/10%.
Therefore it makes it way easier to calculate one factor and multiply it just one time.
Also factors are given in exam and they always should be used if there's a need.
J
jaymzo·
Your Value in use (5000*3.791)=18,955
C
chichi2018·
what about the cost of capital at 10 % do we just ignore it ?
A
ajayf·
what about the cost of capital 10%
A
anamazingorange·
18955, not 18995. at 9:48
Z
zeddjayy·
how is the depreciation 5,000?
E
eustacia·
25000 is dep for 5 years, 5000 is dep for 1 year. we take dep of only 1 year as the reporting period is of 1 year.
On recognition of an Impairment, what happens to the accumulated depreciation when the asset is written down to the new carrying value?
Thanks.
May I please understand why in the computation of value in use we used 5000*3.791
and why did we not use the formula C(1+10%)^5
Thank you in advance for the answer
Year 1 - 0.909090909
Year 2 - 0.826446281
Year 3 - 0.751314801
Year 4 - 0.683013455
Year 5 - 0.620921323
Then each factor is multiplied by 5,000 for each year, then summed and it gives us the same 18,955.
Annuity factor, in contrast, already counts the fact that we receive this 5,000 annually for 5 years: =(1-(1+10%)^-5)/10%.
Therefore it makes it way easier to calculate one factor and multiply it just one time.
Also factors are given in exam and they always should be used if there's a need.