Haley Paper Company operate a 300-ton-per-day Kraft pulp mill and four sawmills in Wisconsin. The company is in the process of expanding its pulp mill facilities to a capacity of 1,000 tons per day and plans to replace three of its older, less efficient sawmills with an expanded facility. One of the mills to be replaced did not operate for most of 2010 (current year), and there are no plans to reopen it before the new sawmill facility becomes operational.
In reviewing the depreciation rates and in discussing the residual values of the sawmills that were to be replaced, it was noted that if present depreciation rates were not adjusted, substantial amounts of plant costs on these three mills would not be depreciated by the time the new mill came on stream.
What is the proper accounting for the four sawmills at the end of 2010?
The sawmill that is out of service should be reclassified from plant, property and equipment to other assets because it is not productive and not being used in the process of generating revenue.
The other three sawmills have an impairment issue. The concept of impairment is defined as "The amount of an impairment loss is measured as the excess of the asset's carrying amount over the fair ...
The 180 word, cited solution explains how Haley Paper should account for the sawmills that may be replaced.