Answer:
The impairment loss that should be recorded is:
= $40,000.
Explanation:
a) Data and Calculations:
Cost of machinery on January 1, 2016 = $200,000
Book value of machinery on January 1, 2018 = $100,000
Estimated future cash flows from the machinery = $70,000
Estimated fair value of the machinery = $60,000
Impairment loss to be recorded = Book value Minus Fair Market Value
= $40,000 ($100,000 - $60,000)
b) The impairment loss is calculated as the difference between the asset's carrying cost of $100,000 and the lower market value of $60,000 instead of $70,000.
