PLANT, PROPERTY, AND EQUIPMENT- PART 3 Present Value of NET Cash Flows

from CONTINUING USE xx

Present Value of NET Cash Flows
IMPAIRMENT LOSS = Carrying Value > Recoverable Value from EVENTUAL DISPOSAL (Residual Value) xx
VALUE IN USE xx
Journal Entry:
Impairment Loss xx
REVERSAL OF IMPAIRMENT/ GAIN ON RECOVERY
Accumulated Depreciation xx
• Recoverable Value
Revaluation Surplus
COMPUTATION OF RECOVERABLE VALUE • Carrying Value WITHOUT (Equity)
• Fair Value LESS Cost to Sell
HIGHER Impairment
• Value in Use
Limit on Recovery/
• Carrying Value WITH
Gain on Recovery
Note: (Profit/ Loss)
Impairment
𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑉𝑎𝑙𝑢𝑒 > 𝑅𝑒𝑐𝑜𝑣𝑒𝑟𝑎𝑏𝑙𝑒 𝑉𝑎𝑙𝑢𝑒 = 𝑰𝑴𝑷𝑨𝑰𝑹𝑴𝑬𝑵𝑻 𝑳𝑶𝑺𝑺 REVERSAL
𝑵𝑶𝑻 𝑰𝑴𝑷𝑨𝑰𝑹𝑬𝑫 1. Initial Revaluation
𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑉𝑎𝑙𝑢𝑒 < 𝑅𝑒𝑐𝑜𝑣𝑒𝑟𝑎𝑏𝑙𝑒 𝑉𝑎𝑙𝑢𝑒 =
𝑜𝑟 𝑵𝑶 𝑮𝑨𝑰𝑵
COST REVALUED AMOUNT
COMPUTATION OF VALUE IN USE GROSS AMOUNT xx xx
• Use Present Value of ORDINARY ANNUITY in computing ACCUMULATED DEPRECIATION (xx) (xx)
the Present Value of NET Cash Flows from CONTINUING NET AMOUNT xx xx
USE
• Use Present Value of SINGLE PAYMENT in computing the
Revaluation Surplus • Fair Value
Present Value of NET Cash Flows from EVENTUAL Revaluation Loss • Sound Value
DISPOSAL (Residual Value) • Depreciated Replacement
Cost
 2. Subsequent Revaluation

Gain on Recovery

Excess: Revaluation Surplus

Revaluation Surplus

Excess: Impairment Loss

DEPLETION (Wasting Asset)

I. Acquisition
II. Exploration
III. Development (Intangible)
IV. Restoration

Formulas To Be Used:
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑊𝑎𝑠𝑡𝑖𝑛𝑔 𝐴𝑠𝑠𝑒𝑡 (𝐶𝑂𝑊𝐴) − 𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝑉𝑎𝑙𝑢𝑒
1. 𝑫𝒆𝒑𝒍𝒆𝒕𝒊𝒐𝒏 𝑹𝒂𝒕𝒆 = 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑈𝑛𝑖𝑡𝑠

2. 𝑫𝒆𝒑𝒍𝒆𝒕𝒊𝒐𝒏 = 𝐴𝑐𝑡𝑢𝑎𝑙 𝑈𝑛𝑖𝑡𝑠 𝑥 𝐷𝑒𝑝𝑙𝑒𝑡𝑖𝑜𝑛