Question

Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country indicates that Rice should investigate for possible impairment. Below is information related to the plant's assets ($ in millions): Book value $ 195 Undiscounted sum of future estimated cash flows 211 Present value of future cash flows 176 Fair value less cost to sell (determined by appraisal) 182 The amount of impairment loss that Rice should recognize according to U.S. GAAP and IFRS, respectively, is: U.S. GAAP IFRS a. $ 13 million $ 13 million b. $ 19 million $ 19 million c. $ 0 $ 13 million d. There is no impairment under both U.S. GAAP and IFRS.

Answer 1

Answer:

c. $ 0 $ 13 million

Explanation:

Under the U.S GAAP, if the sum of future cash flows is exceeded than the book value. So, no impairment loss would be recognized . Hence it would be zero

And, According to the IFRS, if the book value is more than the fair value, than the difference of  book value and the fair value is considered

In mathematically,  

= Book value - fair value  

= $195 million - $182 million

= $13 million