Question

Regis Inc. bought a machine on January 1, 2011 for $800,000. The machine had an expected life of 20 years and was expected to have a salvage value of $80,000. On July 1, 2021, the company reviewed the potential of the machine and determined that its future net cash flows totaled $400,000 and its fair value was $280,000. If the company does not plan to dispose of it, what should Regis record as an impairment loss on July 1, 2021?

Answer 1

Carrying amount of machine is 422.000 and impairment loss is equal to 142.000

Step-by-step explanation:

Step 1. Given information.

• Cost of the machine 800.000
• Expected life 20 years
• Time between 2011 and 2021 = 10.5 years
• Fair value $280.000

Step 2. Formulas needed to solve the exercise.

Carrying amount of machine = Cost of the machine

- [Cost of the machine

-salvage value)/expected life * time between 2011 and 2021]

Impairment loss = Carrying amount - Fair value

Step 3. Calculation.

• Carrying amount of machine = 800,000 - [(800,000-80,000)/20 * 10.5 years]

= 422,000

• Impairment loss = Carrying amount - Fair value

= 422,000 - 280,000

= 142,000

Step 4. Solution.

Carrying amount of machine is 422.000 and impairment loss is equal to 142.000