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At 31 December 2018, Prince Ltd reported these non-current assets: Building 318,000 Less: Accumulated depreciation 145,200 172,800 Equipment 720,000 Less: Accumulated depreciation 288,000 432,000 Total non-current assets 604,800 During 2019, the following selected transactions occurred: May 1 Sold equipment that cost $720,000 for $420,000
At 31 December 2018, Prince Ltd reported these non-current assets:
Building 318,000
Less: Accumulated depreciation 145,200 172,800
Equipment 720,000
Less: Accumulated depreciation 288,000 432,000
Total non-current assets 604,800
During 2019, the following selected transactions occurred:
May 1 Sold equipment that cost $720,000 for $420,000.
June 30 There was an indication that the building could be impaired due to flooding, Prince Ltd calculated the recoverable amount of the building. The net selling price was $155,000 and the value in use was estimated to be $147,000.
Prince Ltd uses straight-line depreciation for buildings and equipment. The building is estimated to have a 40-year useful life and no residual value. The equipment is estimated to have a 10-year useful life and no residual value.
Required
a) Journalise the transactions that occurred during 2019
b) Explain the difference between impairment and depreciation
Expert Solution
Answer:
| a.) | Date | Account Titles | Debit $ | Credit $ | |
| May 1,2019 | Depreciation Expense | 14,000 | |||
| Accumulated Depreciation-Equipment | 14,000 | ||||
| (420,000 /10 ) x 4/12 | |||||
| May 1,2019 | Cash | 420,000 | |||
| Accumulated Depreciation | 302,000 | ||||
| (288,000 + 14,000 ) | |||||
| Equipment | 720,000 | ||||
| Gain on sale of equipment | 2,000 | ||||
| June 30, 2019 | Depreciation Expense | 3,975 | |||
| Accumulated Depreciation- Building | 3,975 | ||||
| (318,000 / 40 ) x 1/2 | |||||
| June 30, 2019 | Impairment Loss | 13,825 | |||
| Accumulated Impairment Loss-Building | 13,825 | ||||
| Working:- | |||
| Building Book value on June 30,2019 | 168,825 | ( 318,000 - 145,200 - 3,975 ) | |
| Less: Recoverable amount | 155,000 | (Higher of 155,000 or 147,000 ) | |
| Impairment Loss | $ 13,825 |
| b.) | Impairment of an fixed assets refers to drastic decrease of the economic value benefits that can be generated due to the damage, whereas Depreciation is charge to profit & loss of an fixed asset value due to normal wear & tear. | |
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