Oh No! Inc. uses a special piece of equipment in its packaging business. the equ

Question

Oh No! Inc. uses a special piece of equipment in its packaging business. the equipment was purchased on 1/1/2002 for $6,000,000 and had an estimated useful life of 6 years and no salvage. On December 31, 2003,new technology was introduced that accelerated the obsolescence of Oh No!'s equipment. the controller estimates that expected future net cash flows on the equipment will be $3,250,000 and that the fair value of the equipment is $3,000,000. What is the amount of impairment on the equipment $1,000,000 $850,000 $0 None of the above

Explanation / Answer

Particulars Cost Cost of the Asset     6,000,000 Life of the Asset                   6 Depreciation per year     1,000,000 Expired life till Dec 2003 2 Yrs Accumulated Depreciation till Dec 2003     2,000,000 Asset Value as at Dec 2003     4,000,000 Estimated Cash Flow from Asset     3,250,000 Fair Value of the Asset     3,000,000 Since IRS Required Impaired Assset to be recorded at fair value Impairemnet Loss is (4000000-3000000)     1,000,000 So Answer was Option A)

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