Sanders Corporation operates a factory in Arizona. Due to a change in business climate an impairment test is deemed appropriate. Management has acquired the following information:
Cost $243,000,000
Accumulated depreciation 112,000,000
Estimate of the total undiscounted
future cash flows 110,000,000
Present value of estimated
future cash flows 94,000,000
Estimated fair value of Arizona
factory, as appraised 90,000,000
Required:
a) Determine the amount of the impairment loss if any.
b) If a loss is indicated, prepare the entry to record the loss.
Answer for (a) :
impairment loss is the amount by which carrying amount of asset exceeds its recoverable amount
Step 1 :
Carrying amount = Cost of asset - Accumulated depreciation and impairment losses
= 243,000,000 -112,000,000
= 131,000,000
Step 2 :
Recoverable amount = higher of
(i) Assets fair value less costs of disposal = 90,000,000
(ii) value in use = 94,000,000
(i.e) recoverable amount = 94,000,000
Step 3 :
Impairment loss = carrying amount - recoverable amount
= 131,000,000 - 94,000,000
= 37,000,000
Answer for (b) :
Journal entry :
Date | Account title | Debit | Credit |
Impairment loss on equipment | $37,000,000 | ||
Equipment | $37,000,000 |
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