Question

Mains Corporation owns equipment with a cost of $290,000 and accumulated depreciation at December 31, 2017 of $150,000. It is estimated that he machinery will generate future cash flows of $165,000. The machinery has a fair value of $115,000. Mains should recognize a loss on impairment of

Answer 1

The value of an asset is impaired when the sum of estimated future cash flows from that asset is less than its book value. At this point an impairment loss should be recognized, which is done by taking the difference between fair market value and the book value and recording this as loss.

Book value = 290000 - 150000 = 140000.

Future cash flows from the machinery = 165000.

since the estimated future cash flows are more than the book value there will be no impairment of assets.

answered by: anonymous