Paradise, a manufacturer located in rural New Brunswick, purchased a widget-making machine in 2017 and depreciated it using the double-declining-balance method. As at Paradise’s fiscal year-end in 2021 (March 31, 2021), the net book value of the widget-making machine was $500,000. On March 31, 2021, Paradise realized that there were breakthroughs in widget manufacturing which would put their machine into obsolescence in exactly 7 years. The widget-making machine was appraised to have a fair value of $400,000; costs of disposal of $15,000; future discounted net cashflows of $415,000; and future undiscounted net cashflows of $450,000. Paradise plans to use the machine for the next 7 years while it invests in research and development (R&D) to construct an in-house piece of widget-making equipment. Starting on April 1, 2021, however, Paradise will switch to the straight line method of depreciation. Required (a) If required, prepare the journal entry(ies) in good form to record impairment loss for the widget-making machine on March 31, 2021. Assume Paradise reports under IFRS. (b) If required, prepare the journal entry(ies) in good form to record impairment loss for the widget-making machine on March 31, 2021. Assume Paradise reports under ASPE.
Paradise, a manufacturer located in rural New Brunswick, purchased a widget-making machine in
2017 and depreciated it using the double-declining-balance method. As at Paradise’s fiscal year-end in
2021 (March 31, 2021), the net book value of the widget-making machine was $500,000.
On March 31, 2021, Paradise realized that there were breakthroughs in widget manufacturing which
would put their machine into obsolescence in exactly 7 years. The widget-making machine was
appraised to have a fair value of $400,000; costs of disposal of $15,000; future discounted net
cashflows of $415,000; and future undiscounted net cashflows of $450,000.
Paradise plans to use the machine for the next 7 years while it invests in research and development
(R&D) to construct an in-house piece of widget-making equipment. Starting on April 1, 2021, however,
Paradise will switch to the
Required
(a) If required, prepare the
the widget-making machine on March 31, 2021. Assume Paradise reports under IFRS.
(b) If required, prepare the journal entry(ies) in good form to record impairment loss for
the widget-making machine on March 31, 2021. Assume Paradise reports under ASPE.
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