Example of Depreciation of Impaired Asset

Example of Depreciation of Impaired Asset

Impaired asset are depreciated over impaired value and remaining useful life of the asset. The formula can be express as follow

  (Impaired value-Residual value)/ Remaining useful life

Example of Depreciation of impairment

Plant was purchased $ 100,000 the asset was depreciated over 10 years. After 2 years the fair value of the asset declined to the 50,000. Calculate depreciation for the impaired asset.

Solution

1. Calculate the impairment

In first place the impairment is calculated i.e. recoverable amount exceeding the carrying amount.

Cost	$ 100,000
Depreciation 2 years	$   20,000
Carrying value	$   80,000
Fair value	$   50,000
Impairment	$   30,000

The asset value will be reduced by the impairment loss. The journal entry for the impairment is as under

Date	Particulars	Dr.	Cr.
	Impairment Loss	$ 30,000
	Fixed Asset		$ 30,000

2. Calculate the Depreciation

Carrying Value	$ 80,000
Impairment Loss	$ 30,000
Impaired Value	$ 50,000
Remaining useful life	8 Years
Depreciation $50,000/8	$ 6,250