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Questions: The Cost of PPE is $280 in Jan 2001
life time is 20 years
the PPE has $60 fair value in 31 Dec 2010
using revaluation modelThe journal entries:
1 Jan 2001 Dr. PPE 280
Cr. Bank 28031 Dec 2001 Dr. Depreciation (280/20) 14
Cr. Accumulated Dep. 1431 Dec 2001 Dr. Accumulated Depreciation (14 x 10 years) 140
Cr. PPE 140
Dr. Revaluation deficit (60-(280-140)) 80
Cr. PPE 80I think my answer above is right, but I confuse if PPE question with impairment loss
If the question says 2 years after the recoverable amount is $40
31 Dec 2003 Dr. Depreciation ($60/10 years) 6
Cr. Accumulated Depreciation 6Dr. Accumulated Depreciation (6 x 2years) 18
Cr. PPE 18
Dr. Revaluation deficit 2
PPE 2The answer is 2 because I think FV($60) – Accumulated Dep ($18) = $42 carrying amount. Then, the impairment loss(CA>RA) is $42-$40 =$2
I would like to know whether the $2 impairment loss is treated as the revaluation deficit, just like my working?
Also, I would like to know how to deal with reversal impairment loss.
As I know, reversal impairment loss is the CA<RA
if after 2 years the recoverable amount is $50
31 Dec 2005 Dr. Depreciation ($40/8 years) 5
Cr. Accumulated Depreciation 5
Dr. Accumulated Depreciation (5 x 2 years) 10
Cr. PPE 10
Dr. PPE 20
Cr. Reversal of impairment loss (50-30) 20Is it treat it like this?
Please give suggestions for me to do it better in making entries. thank you!!!!
i am looking forward to your reply.
“Dr. Accumulated Depreciation (6 x 2years) 18”
Before I go any further, do you want to rethink this line from your post – maybe have a calculator handy!
OK?
I just found that I write the date incorrectly, but I cannot find which figure I calculated wrong.
The journal entries:
1 Jan 2001 Dr. PPE 280
Cr. Bank 28031 Dec 2001 Dr. Depreciation (280/20) 14
Cr. Accumulated Dep. 1431 Dec 2010 Dr. Accumulated Depreciation (14 x 10 years) 140
Cr. PPE 140
Dr. Revaluation deficit (60-(280-140)) 80
Cr. PPE 80I think my answer above is right, but I confuse if PPE question with impairment loss
If the question says 2 years after the recoverable amount is $40
31 Dec 2012 Dr. Depreciation ($60/10 years) 6
Cr. Accumulated Depreciation 6Dr. Accumulated Depreciation (6 x 2years) 18
Cr. PPE 18
Dr. Revaluation deficit 2 (40-(60-18))
PPE 2The answer is 2 because I think FV($60) – Accumulated Dep ($18) = $42 carrying amount. Then, the impairment loss(CA>RA) is $42-$40 =$2
I would like to know whether the $2 impairment loss is treated as the revaluation deficit, just like my working?
Also, I would like to know how to deal with reversal impairment loss.
As I know, reversal impairment loss is the CA<RA
if after 2 years the recoverable amount is $50
31 Dec 2014 Dr. Depreciation ($40/8 years) 5
Cr. Accumulated Depreciation 5
Dr. Accumulated Depreciation (5 x 2 years) 10
Cr. PPE 10
Dr. PPE 20
Cr. Reversal of impairment loss (50-30) 20Do you see the line in your post that reads “Dr Accumulated Depreciation (6 x 2 years) 18”
Do you think that maybe there’s something wrong in that line?
Try again!
Sorry for my carelessness. I have corrected it.
The journal entries:
1 Jan 2001 Dr. PPE 280
Cr. Bank 28031 Dec 2001 Dr. Depreciation (280/20) 14
Cr. Accumulated Dep. 1431 Dec 2010 Dr. Accumulated Depreciation (14 x 10 years) 140
Cr. PPE 140
Dr. Revaluation deficit (60-(280-140)) 80
Cr. PPE 80I think my answer above is right, but I confuse if PPE question with the impairment loss
If the question says 2 years after the recoverable amount is $40
31 Dec 2012 Dr. Depreciation ($60/10 years) 6
Cr. Accumulated Depreciation 6Dr. Accumulated Depreciation (6 x 2years) 12
Cr. PPE 12
Dr. Revaluation deficit 8 (40-(60-12))
PPE 8The answer is 2 because I think FV($60) – Accumulated Dep ($12) = $48 carrying amount. Then, the impairment loss(CA>RA) is $48-$40 =$8
I would like to know whether the $8 impairment loss is treated as the revaluation deficit or just write dr. impairment loss?
Also, I would like to know how to deal with reversal impairment loss.
As I know, reversal impairment loss is the CA<RA
if after 2 years the recoverable amount is $50
31 Dec 2014 Dr. Depreciation ($40/8 years) 5
Cr. Accumulated Depreciation 5
Dr. Accumulated Depreciation (5 x 2 years) 10
Cr. PPE 10
Dr. PPE 20
Cr. Reversal of impairment loss (50-30) 20You still have an uncorrected error … here
“The answer is 2 because I think FV($60) – Accumulated Dep ($12) = $48 carrying amount. Then, the impairment loss(CA>RA) is $48-$40 =$8”
This should read “The answer is 8 because …”
Now let’s start again
On the acquisition we have:
Dr PPE 280
Cr Cash 280For 10 years we depreciate at the rate of 14 each year so we have, over that 10 years:
Dr Depreciation Expense Account in Statement of Profit or Loss 140
Cr Accumulated Depreciation Account 140Our asset now has a net carrying value of 280 – 140 = 140
We impair it down to 60
Dr Depreciation Expense Account in Statement of Profit or Loss 80
Cr Accumulated Depreciation Account 80and our asset now has a net carrying value of 60 to be depreciated over the remaining 10 years at the rate of 6 each year
Over the next 2 years we account for this annual depreciation charge of 6:
Dr Depreciation Expense Account in Statement of Profit or Loss 12
Cr Accumulated Depreciation Account 12and our asset now has a net carrying value of 48 at which time we impair it further down to 40
Dr Depreciation Expense Account in Statement of Profit or Loss 8
Cr Accumulated Depreciation Account 8and our asset now has a net carrying value of 40 to be depreciated over the remaining 8 years at the rate of 5 each year
So 2 years later, at the depreciation rate of 5 each year, we have:
Dr Depreciation Expense Account in Statement of Profit or Loss 10
Cr Accumulated Depreciation Account 10and our asset now has a net carrying value of 30
Now you want to know about the reversal of an impairment loss where, with a carrying value of 30, we re-assess the value of the asset and arrive at a figure of 50
If we had not impaired after 10 years, that asset would have now been depreciated for 14 years at the rate of 14 each year giving us accumulated depreciation of 196 and a net carrying value of 84
The reason for this last paragraph? We cannot un-impair a previously impaired asset to a value that it would have been had we not impaired it
So our revised valuation of 50 (when the asset is 14 years old) that involves the reversal of a previous impairment is potentially restricted
If we hadn’t made that first impairment, the carrying value would have been 84 so there’s no restriction applicable – we can un-impair from a carrying value of 30 back up to 50 to be depreciated over the remaining 6 years
Dr Accumulated Depreciation Account 20
Cr Depreciation Expense Account in Statement of Profit or Loss 20Is that OK?
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