Question

Chadwick Enterprises, Inc., operates several restaurants throughout the Midwest. Three of its restaurants located in the center of a large urban area have experienced declining profits due to declining population. The company’s management has decided to test the assets of the restaurants for possible impairment. The relevant information for these assets is presented below. Book value $ 7.1 million Estimated undiscounted sum of future cash flows 4.3 million Fair value 3.8 million Required: 1. Determine the amount of the impairment loss. 2. Determine the amount of the impairment loss assuming that the estimated undiscounted sum of future cash flows is $7.4 million and fair value is $5.3 million.

Answer 1

To know the asset is impaired or not we need to first compare book value with undiscounted net cash flow if the book value is more than it than impairement loss is recorded. The impairement loss is difference between FMV and book value of the asset
Book value	$7.10	million
undiscounted future net cash flows	4.3 million
as undiscounted future net cash flows is less than book value hence impairement will be recognized
Impairemnt loss= Book value-FMV
7.1-3.8	3.3
ans 1
Impairement Loss	$3.3	Million
ans 2
In this case there is no impairement as
as undiscounted future net cash flows is more than book value
Impairemnt Loss	$0
If any doubt please comment