Question

Ouyang Inc. reports the following information about its equipment under IFRS:

Table: Ouyang Inc. Equipment Information

Financial Information	Amount
Fair value	10,000,000
Costs to sell	20,000
Value in use	8,000,000
Residual value	40,000
Acquisition cost	14,000,000
Accumulated depreciation	2,500,000

The amount of the impairment loss on Ouyang's income statement related to this equipment is closet to:

2,520,000

2,020,000

1,820,000

1,520,000

1,220,000

Answer 1

Equipment's carrying value = Acquisition cost - Accumulated depreciation = $14,000,000 - $2,500,000 = $11,500,000

Determine the equipment's recoverable value as follows:

Recoverable value is the higher of fair value less cost to sell and value in use.

Fair value less cost to sell = $10,000,000 - $20,000 = $9,980,000

Value in use = $8,000,000

Since the fair value less cost to sell is higher than the value in use, the equipment's recoverable value will be $9,980,000.

Now,

Since the equipment's carrying value is greater than its recoverable value, there is an impairment loss.

Impairment loss = Carrying value - Recoverable value = $11,500,000 - $9,980,000 = $1,520,000

Therefore,

The correct answer is $1,520,000.