Escalera Company reported an impairment loss of P5,200,000 in its income statement for the year 2016. This loss was related to a building that was acquired on January 1, 2012 with a cost of P80,000,000 (no residual value). Depreciation on the building is computed on a straight-line basis at the rate of 4% per year. Depreciation for the year 2017 was computed based on the asset’s recoverable amount at December 31, 2016. On December 31, 2021, the entity decided to measure its building using revaluation model. This building was then appraised to a fair value of P50,000,000. What amount of gain on impairment recovery should Putin Company report in its 2021 income statement?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
17. Escalera Company reported an impairment loss of P5,200,000 in its income statement for the year 2016. This loss was related to a building that was acquired on January 1, 2012 with a cost of P80,000,000 (no residual value).
On December 31, 2021, the entity decided to measure its building using revaluation model. This building was then appraised to a fair value of P50,000,000.
What amount of gain on impairment recovery should Putin Company report in its 2021 income statement?
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