Additional Problem 8 (Part Level Submission) On January 1, 2015, Pronghorn Ltd.

Question

Additional Problem 8 (Part Level Submission)

On January 1, 2015, Pronghorn Ltd. purchased equipment for $704,000. The equipment was assumed to have an 8-year useful life and no residual value, and was to be depreciated using the straight-line method. On January 1, 2017, Pronghorn's management became concerned that the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $506,000, the discounted future net cash flows was $448,800, and the current fair value of the equipment (after costs to sell) was $440,000.

(a1)

Additional Problem 8 (Part Level Submission)

On January 1, 2015, Pronghorn Ltd. purchased equipment for $704,000. The equipment was assumed to have an 8-year useful life and no residual value, and was to be depreciated using the straight-line method. On January 1, 2017, Pronghorn's management became concerned that the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $506,000, the discounted future net cash flows was $448,800, and the current fair value of the equipment (after costs to sell) was $440,000.

Explanation / Answer

I could see that the answer to the question has already been provided and I think he reason for posting the question along with answer would be the confirm whether the answer is correct or not.

With the above mentioned assumption, I proceed further.

The answer given is absolutely correct I.e, cost recovery impairment model rational entity impairment model should be used to test for impairment because, as per the given information is concerned, this model best suits to be the test for impairment. As per my knowledge is concerned, the given answer is correct.

Thank you.

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