Is the equipment impaired? If so, determine the amount of the gain or loss to th

Question

Is the equipment impaired? If so, determine the amount of the gain or loss to the asset impairment.

On January 2, assume that the company BB purchases equipment that fabricates a key-product part. That equipment costs $95,000, and its estimated useful life is five years, and after which it is expected to be sold for $10,000. BB uses straight-line depreciation. At the end of the third year, BB estimates that the equipment will generate $39,500 in undiscounted cash flow over its remaining life and that it has a current fair value of $36,000. Is the equipment impaired? If, so, determine the amount of the gain or loss on the asset impairment. (Clearly indicate gain or loss and the amount.)

Explanation / Answer

BB Details Amt $ Cost of Equipment                   95,000 Less Salvage value                   10,000 Depreciable value                     85,000 Useful life in years                              5 Annual SL depreciation =                   17,000 Total Depreciation in three years=                   51,000 Carrying Value after 3 Years=95000-51000=                   44,000 Future undiscounted cash flows =                   39,500 As future undiscounted cash flow is less than the carrying valyue, there is impairment of Asset. Current Fair Value of the asset =                   36,000 Impairment Loss=44000-36000=                     8,000 So the Impairment loss is $8,000

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.