10) Chadwick Enterprises, Inc., operates several restaurants throughout the Midw
ID: 2563029 • Letter: 1
Question
10)
Chadwick Enterprises, Inc., operates several restaurants throughout the Midwest. Three of its restaurants located in the center of a large urban area have experienced declining profits due to declining population. The company’s management has decided to test the assets of the restaurants for possible impairment. The relevant information for these assets is presented below.
Required:
1. Determine the amount of the impairment loss.
2. Determine the amount of the impairment loss assuming that the estimated undiscounted sum of future cash flows is $9.0 million and fair value is $6.1 million.
(For all requirements, Enter your answer in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5)).
Explanation / Answer
Note for understanding : For determining impairment loss to be recognise in the books , the below mentioned two steps need to be follow :
Answer 1
Test of Recoverability :
(i) Book value = $8.7 million
(ii) Estimated undiscounted sum of future cash flows = $5.1 million.
Since (i) > (ii) , The assets are imparied
Measuring of impaired assets :
Impairment Loss = $8.7 million - $4.6 million = $4.1 million
Answer 2
Test of Recoverability :
(i) Book value = $8.7 million
(ii) Estimated undiscounted sum of future cash flows = $9 million.
Since (i) < (ii) , The assets are not imparied
Measuring of impaired assets :
Since the assets are not impaired , thus Impairment Loss = $0
Final Answer :
1. Impairment Loss : $4.1 million
2 Impairment Loss : $0
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