Cost Recovery Impairment Model, Revision of Depreciation

question 74

Essay

Cost recovery impairment model, revision of depreciation
Rhino Corporation is a manufacturer of automobile parts. Its capital assets include specialized equipment that is being used in the finishing stage of its manufacturing process.
The equipment was purchased in 2017 and is being depreciated using the units of production method. By December 31, 2018, the book (carrying) value was $430,000 (after depreciation expense had been recorded). However, at that time, Rhino became aware of new technology that would make the equipment obsolete within the next five years. An appraisal puts the equipment's future undiscounted net cash flows at $390,000 and its fair value at $300,000. While considering its options for the eventual replacement, Rhino will continue using the equipment, but will change to straight-line depreciation.
Instructions
Assuming Rhino is a private Canadian corporation,
a) Prepare the journal entry, if any, to record the impairment loss at December 31, 2018.
b) Prepare the journal entries to record 2019 and 2020 depreciation.

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