Milk Company bought a machine on 1 January 2019 for $5,000,000 cash. The machine has an estimated useful life of 10 years with no residual value. The company uses straight-line depreciation method, cost model for all its PPE and its balance day is 31 December. At December 31, 2020, the performance of the asset was not as expected, producing less milk than the original amount predicted. After some calculations, it was estimated that the fair value less cost to sell the machine would be $3,900,000 and the value in use of the machine would be $3,700,000. At December 31, 2021, the fair value less cost to sell the machine is $3,350,000 and the present value of expected future cash flow on the machine is $3,412,500. The recoverable amount of the machine at December 31, 2022, is estimated to be $2,975,000.

Milk Company bought a machine on 1 January 2019 for $5,000,000 cash. The machine has an estimated useful life of 10 years with no residual value. The company uses straight-line depreciation method, cost model for all its PPE and its balance day is 31 December. At December 31, 2020, the performance of the asset was not as expected, producing less milk than the original amount predicted. After some calculations, it was estimated that the fair value less cost to sell the machine would be $3,900,000 and the value in use of the machine would be $3,700,000. At December 31, 2021, the fair value less cost to sell the machine is $3,350,000 and the present value of expected future cash flow on the machine is $3,412,500. The recoverable amount of the machine at December 31, 2022, is estimated to be $2,975,000.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 8P: Kam Company purchased a machine on January 2, 2019, for 20,000. The machine had an expected life of...

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