A company has some bottling equipment which cost $10.60 million, has a net book

Question

A company has some bottling equipment which cost $10.60 million, has a net book value of $5.15 million, estimated future cash flows of $3.91 million, and a fair value of $3.31 million. Which of the following correctly describes the recording of the asset impairment loss?

A. The loss account is debited for $6.69 million and the asset account is credited for $6.69 million.

B. The loss account is debited for $1.84 million and the asset account is credited for $1.84 million.

C. The loss account is debited for $1.24 million and the asset account is credited for $1.24 million.

D. The loss account is debited for $7.29 million and the asset account is credited for $7.29 million.

Please provide the math and detailed explanation for the answer whevever possible.

A company has some bottling equipment which cost $10.60 million, has a net book value of $5.15 million, estimated future cash flows of $3.91 million, and a fair value of $3.31 million. Which of the following correctly describes the recording of the asset impairment loss?

Explanation / Answer

Impairment loss is recognised if the existing asset value is more than the recoverable amount

and therefore we need to find the recverable amount and recoverable amount is nothing but higher of value in use and faisr value less cost to sell

in the given example the future cash flow = 3.91 and fair value = 3.31 million

therefore the recoverable amount is = $3.91 million and therefore the impairment loss = 5.15- 3.91

=$ 1.24 million

therefore the option is C

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