Johnson Company Is Located in Hong Kong and Uses International

question 59

Essay

Johnson Company is located in Hong Kong and uses international accounting standards. Johnson Company purchased equipment 8 years ago for $1,000,000. The equipment has been depreciated using the straight-line method with a 20-year useful life and 10% residual value. Johnson's operations have experienced significant losses for the past 2 years and, as a result, the company has decided that the equipment should be evaluated for possible impairment. The management of Johnson Company estimates that the equipment has a remaining useful life of 7 years. The discounted value of the future net cash inflows from the use of the equipment is $220,000. The fair value of the equipment is $240,000. No goodwill was associated with the purchase of the equipment. Johnson Company has chosen to recognize increases in the value of long-term operating assets in accordance with the allowable alternative under IAS 36.

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