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Mike purchased a piece of manufacturing equipment on January 1, 20X1 for $250,000. The equipment has...

Mike purchased a piece of manufacturing equipment on January 1, 20X1 for $250,000. The equipment has been depreciated using the straight-line method with a 10-year useful life and no residual value. At the beginning of 20X6, Mike estimates that the equipment has a remaining useful life of 5 years, that net cash inflow from the equipment will be $18,000 per year, and that the fair value of the equipment is $110,000.

Determine whether the equipment is impaired. If so, what is the amount of impairment loss recorded in 20X6?

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Answer #1
Straight Line annual depreciation $ 25,000 =250000/10
Depreciation for 5 Years        125,000 =25000*5
WDV at beginning of 20X6 $ 125,000 =250000-125000
Total Cash flow           90,000 =18000*5
Fair Value        110,000
Recoverable amount        110,000 ( Greater of 90,000 or 110,000 )
Impairment loss $ 15,000 =125000-110000
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