Valix Finacc vol 1 Problem 19-21

Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 19 Problem 19-21

1. Impairment loss                                                                               5,000,000

            Accumulated depreciation (35,000,000 – 30,000,000)                         5,000,000                                                         

2. Depreciation                                                                                   6,000,000

            Accumulated depreciation (30,000,000 / 5)                                                    6,000,000

                                                                                                                                   

Observe that the undiscounted net cash flows from the asset amount to P37,500,000 for 5 years. This amount is more than the book value of the machinery. Under American

    Standard, no impairment loss should be recognized in this case. However, under the

    PAS 36, if the recoverable amount is less than carrying amount, an impairment loss is

    recognized, regardless of the amount of undiscounted cash flows whether less than or

    more than the carrying amount. PAS 36 has totally rejected the concept of

    undiscounted cash flows for impairment purposes.