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soldi70 [24.7K]
3 years ago
14

King corporation owns machinery with a book value of $760,000. It is estimated that the machinery will generate future cash flow

s of $700,000. The machinery has a fair value of $560,000. King should recognize a loss on impairment of?
Business
1 answer:
Evgen [1.6K]3 years ago
4 0

Answer:

King should recognize a loss on impairment of $60,000

Explanation:

In terms of IAS 36, Impairement happens when the Carring Amount of an Asset is <em>Higher</em> than the Recoverable Amount of an Asset.

<u>Recoverable Amount</u>

Recoverable Amount is the Higher of :

(a) Assets Value In Use, and

(b) Fair Value Less Cost to Sell

therefore:

Assets Value In Use = $700,000

Fair Value Less Cost to Sell = $560,000

therefore Recoverable Amount is $700,000 ( higher)

<u>Carrying Amount</u>

Book Value = Carrying Amount = $760,000

<u>Impairement Anaylsis</u>

Carrying Amount ($760,000) > Recoverable Amount ( $700,000)

Recognised Imparement loss is $60,000 ($760,000- $700,000)

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