Question

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?

Question 3 options:

No impairment

15,000

25,000

35,000
Business   Accounting   
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Answer #1

Correct answer---------$15,000

Answer is given using US GAAP instead of IFRS. Please leave a comment for any confusion or query.

Working

Fair value of Equipment $ 110,000.00
Cash flow from Equipment (18000 x 5) $    90,000.00
Book value (250000-(250000/10 x 5)) $ 125,000.00
Book value is less than cash flow from Asset so the impairment loss is triggered and hence
Impairment will be recorded as ….Impairment loss= (Book value-Fair value ) $    15,000.00
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