Question

Crane Company owns machinery with a book value of $750000. It is estimated that the machinery...

Crane Company owns machinery with a book value of $750000. It is estimated that the machinery will generate future cash flows of $690000. The machinery has a fair value of $550000. Crane should recognize a loss on impairment of

$140000.
$200000.
$ -0-.
$60000.
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Answer #1

The correct answer is $60000
Impairment Loss = Carrying Amount of Asset - Recoverable Amount

Carrying Amount = Cost of Asset - Depreciation

Recoverable Amount = Higher of

  • Net Sale Proceeds
  • Value in use

Net Sale Proceeds = Fair Value of Asset - Expenses incurred for sale

Value in use = The present value of benefits expected from continuing use of assets and its disposal.

Carrying Amount = $750000 - 0

= $750000

Net Sale proceeds = $550000 - 0

= $550000

Value in use = $690000

Therefore Recoverable Amount = $690000

( Higher of Net Sale proceeds and Value in use)

Calculation of Impairment Loss

= $750000 - $690000

= $60000

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