| Cost | $8,910,000 | |
| Accumulated depreciation to date | 990,000 | |
| Expected future net cash flows (undiscounted) | 6,930,000 | |
| Expected future net cash flows (discounted, value in use) | 6,286,500 | |
| Fair value | 6,138,000 | |
| Costs to sell (costs of disposal) | 49,500 |
At December 31, 2020, Sweet Acacia discontinues use of the equipment and intends to dispose of it in the coming year by selling it to a competitor. It is expected that the costs of disposal will total $49,500.
| 1. | Prepare the journal entry at December 31, 2020, to record asset impairment, if any. | |
| 2. | Prepare the journal entry to record depreciation expense for 2021. | |
| 3. | Assume that the asset was not sold by December 31, 2021. The equipment’s fair value (and recoverable amount) on this date is $6.44 million. Prepare the journal entry, if any, to record the increase in fair value. It is expected that the costs of disposal will total $49,500. |
Repeat the requirements in (a) above assuming that Sweet Acacia is a public company that follows IFRS, and that the asset meets all criteria for classification as an asset held for sale.
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