Question

Vaughn Manufacturing has equipment with a carrying amount of $2620000. The expected future net cash flows from the equipment are $2650000, and its fair value is $2040000. The equipment is expected to be used in operations in the future. What amount (if any) should Vaughn report as an impairment to its equipment?

Answer 1

The answer is $610,000

Step-by-step explanation:

Impairment charge is made on an asset whenever the fair value(most times fair value less cost to sales is less than the carrying value).

And under US GAAP, if the fair value is less than future net cash flow from the equipment.

So back to the question;

Fair value is $2,040,000

Future cash flow is $2,650,000

Impairment charge is therefore,

$2,650,000 - $2,040,000

$610,000