Reference no: EM133108447

Question 1 - On December 31, 2021, Alexis Company has an item of machinery with a cost of P4,500,000 and an accumulated depreciation of P1,800,000. On this date, the machinery is found to be impaired due to obsolescence and a major physical damage. At the date of its acquisition, this machinery has an estimated useful life of ten years and was depreciated using the straight line basis.

The entity made an assessment and test for recoverability of the asset and determined that the machinery's fair value is P2,500,000 and estimated disposal cost is P250,000. The entity expects net future undiscounted cash flows related to the continued use and eventual disposal of the machinery of P2,600,000. The net future discounted cash flows related to the continued use and eventual disposal of the machinery using a discount rate of 10% is P2,180,000.

How much is the depreciation expense of this machinery for the year ended December 31, 2022?

Question 2 - Charles Company has some old equipment that cost P700,000 with an accumulated depreciation of P400,000. The equipment was traded in for a new machine from a dealer company that had a list price of P800,000; however, the new machine could be purchased without trade in for P780,000 cash. Charles Company paid P500,000 cash in the exchange.

Determine the following:

(1) Initial cost of the newly acquired equipment

(2) Gain or loss on exchange