Question

Impairment--Jessica Fullem Corp. was determining whether to write off some equipment. The equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2020. On December 31, management projected the future net cash flows from this equipment to be $300,000 and the fair value to be $330,000. the company intends to use this equipment in the future, Determine if there is a loss on impairment and how much.

Answer 1

Answer:

-$170,000

Explanation:

Cost of equipment = $900,000

Accumulated dep = $400,000

Book value = Cost - Accumulated dep = 900,000 - 400,000 = 500,000

Future net cash flow from equipment = 300,000

Fair value of equipment= 330,000

Recoverable amount = Higher of value in use / Fair value

Recoverable amount = Higher of 300,000 or 330,000

Recoverable amount = $330,000

Impairment loss = Recoverable amount - Book value (as Recoverable amount is lower than book value)

Impairment loss = 330,000 - 500,000

Impairment loss = -$170,000