Submitted by: Submitted by mayenggay
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Pages: 2
Category: Business and Industry
Date Submitted: 07/23/2013 08:04 AM
Exercises on the Impairment of Revalued Assets
1. Cherry Company acquired a building on Jan 1, 2006 at a cost of P20M. The building has an estimated useful life of 6 years and a residual value of P2M. The building was revalued on January 1, 2009 and the revaluation revealed a replacement cost of P30M, residual value of P4M and revised useful life of 8 years. Unfortunately, the ground floor of the building was seriously damaged by Typhoon Ondoy in September 2009. As a result, the recoverable amount of the building was estimated on Jan. 1, 2010 to be P10M with no residual value. REQUIRED: Journal Entries on Jan 1, 2009 Dec 31, 2009 Jan 1, 2010 Dec 31, 2010 2. The following data pertain to machinery on the date of its revaluation, December 31, 2009. Cost Replacement Cost Machinery 9,000,000 15,000,000 Accumulated depreciation 3,600,000 Life in years 25 years
On December 31, 2010, as a result of a clear trend of a shift in demand away for the products for which the machine is used, its recoverable amount was estimated to be only P5M. The company successfully developed new products using the machine in 2012. As a result, a re-appraisal of the machine on Jan 1, 2013 revealed that its recoverable value had increased to P7.5M. REQUIRED: Journal Entries on Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012 Jan 1, 2013
ANSWERS:
Problem 1 1/1/09 Building Acc Depn Revaln Surplus 10,000,000 4,000,000 6,000,000
12/31/09 Dep Exp Acc Depn Revaln Surplus RE
2,600,000 2,600,000 1,200,000 1,200,000 14,400,000 10,000,000 4,400,000
1/1/2010 Carrying Amount Recoverable Amount Impairment Loss Revaln Surplus 4,400,000 Allow for Impairment 12/31/10 Depn Exp Acc Depn Revaln Surplus RE 2,500,000
4,400,000
2,500,000 100,000 100,000
Problem 2 12/31/09 Machinery Acc Depn Rev Surplus 12/31/10 Depn Exp Acc Depn Rev Surplus RE Carrying Amount Recov Amt Impairment Rev Surplus Imp Loss Allow for Imp 12/31/11 Depn Exp Acc Depn 12/31/12 Depn Exp 3,360,000...