C is corrent. When an impairment of value occurs on a plant asset, a loss should be recognized with a corresponding decrease in the carrying amount of the asset. The loss should be recognized as soon as evidence exists that such a loss has been sustained. The carrying amount of this asset at 12/31/Y2 is $400,000 [$600,000 – (2 × $100,000)]. In year 3, a loss of $280,000 is recognized, to bring the carrying amount down to $120,000. This carrying amount is then depreciated over the remaining life of 3 years (1/1/Y3 to 12/31/Y5), resulting in yearly depreciation of $40,000 ($120,000 / 3). Therefore, the carrying amount at 12/31/Y3 is $80,000 ($120,000 – $40,000).
A is incorrect. When an impairment of value occurs on a plant asset, a loss should be recognized with a corresponding decrease in the carrying amount of the asset. The loss should be recognized as soon as evidence exists that such a loss has been sustained. The carrying amount of this asset at 12/31/Y2 is $400,000 [$600,000 – (2 × $100,000)]. In year 3, a loss of $280,000 is recognized, to bring the carrying amount down to $120,000. This carrying amount is then depreciated over the remaining life of 3 years (1/1/Y3 to 12/31/Y5), resulting in yearly depreciation of $40,000 ($120,000 / 3). Therefore, the carrying amount at 12/31/Y3 is $80,000 ($120,000 – $40,000).
A is incorrect. When an impairment of value occurs on a plant asset, a loss should be recognized with a corresponding decrease in the carrying amount of the asset. The loss should be recognized as soon as evidence exists that such a loss has been sustained. The carrying amount of this asset at 12/31/Y2 is $400,000 [$600,000 – (2 × $100,000)]. In year 3, a loss of $280,000 is recognized, to bring the carrying amount down to $120,000. This carrying amount is then depreciated over the remaining life of 3 years (1/1/Y3 to 12/31/Y5), resulting in yearly depreciation of $40,000 ($120,000 / 3). Therefore, the carrying amount at 12/31/Y3 is $80,000 ($120,000 – $40,000).
D is incorrect. When an impairment of value occurs on a plant asset, a loss should be recognized with a corresponding decrease in the carrying amount of the asset. The loss should be recognized as soon as evidence exists that such a loss has been sustained. The carrying amount of this asset at 12/31/Y2 is $400,000 [$600,000 – (2 × $100,000)]. In year 3, a loss of $280,000 is recognized, to bring the carrying amount down to $120,000. This carrying amount is then depreciated over the remaining life of 3 years (1/1/Y3 to 12/31/Y5), resulting in yearly depreciation of $40,000 ($120,000 / 3). Therefore, the carrying amount at 12/31/Y3 is $80,000 ($120,000 – $40,000).
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