Question
Glenmoor Logistics tests two asset groups held for use for impairment under US GAAP (ASC 360) at December 31, 2026. Depreciation for 2026 has already been recorded.
| Asset group | Cost | Accumulated depreciation | Undiscounted future net cash flows | Fair value |
|---|
| Parcel sorting line | $900,000 | $300,000 | $560,000 | $470,000 |
| Delivery vehicle fleet | 320,000 | 120,000 | 215,000 | 170,000 |
After the test, the sorting line has a remaining useful life of 5 years and no residual value; Glenmoor uses the straight-line method.
Required:
- Record any impairment loss at December 31, 2026. Debit Loss on Impairment and credit Accumulated Depreciation - Equipment. Record nothing for an asset group that is not impaired.
- Record depreciation of the sorting line for 2027 at December 31, 2027.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 16 — Property, Plant and Equipment
Initial cost captures everything needed to bring the asset to its location and working condition — purchase price, import duties, site preparation, installation and testing. After recognition, subsequent expenditure is capitalised only if it improves the asset beyond its original standard; otherwise it is repairs.
Common mistakes
- Expensing delivery, installation or testing costs that form part of initial cost.
- Capitalising routine maintenance, or expensing an upgrade that genuinely extends useful life.
- Including recoverable input tax or abnormal wastage in the cost of the asset.
IFRS vs US GAAP: IFRS permits the revaluation model for a whole class of assets; US GAAP requires historical cost.
Further readingIAS 16: initial cost and depreciation