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Presented below is information related to equipment owned by Vaughn Company at December 31, 2017. Cost $9,360,000 Accumulated depreciation to date 1,040,000 Expected future net cash flows 7,280,000 Fair value 4,992,000 Assume that Vaughn will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 5 years. Collapse question part (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

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Answer:

The double for the impairment  is given below

Dr Impairment loss expense(income statement) $3,328,000

Cr Accumulated depreciation                                                    $3,328,000

Explanation:

An asset is impaired if its carrying value(net book value) is higher than its recoverable  amount.

Recoverable amount is the higher of fair value less costs to sell and value in use.

First of all, identifying the figures above individually would be a good starting point to calculating the impairment on the equipment.

Carrying value is $8320000 (cost less accumulated depreciation to date)

Recoverable amount  under IAS 36 is the higher of fair value less costs of disposal and value in use

However,the calculation of impairment under U.S GAAP ,requires that the asset carrying amount is compared to fair value of the asset, as a result impairment is $3,328,000 ($8,320,000-$4,992,000)

Under IFRS the credit is posted directly to equipment account in the balance sheet

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