Question

torque co. has equipment with a carrying amount (book value) of $2,400,000. the expected future net cash flows from the equipment are $2,445,000, and its fair value is $2,040,000. the equipment is expected to be used in operations in the future. what amount should torque report as an impairment loss on the equipment?

Answer 1

The impairment loss for Torque Co.'s equipment is $360,000, calculated as the difference between its carrying amount of $2,400,000 and its fair value of $2,040,000.

Step-by-step explanation:

The impairment loss on the equipment should be calculated by comparing the equipment's carrying amount (book value) to its fair value. The carrying amount is $2,400,000, and the fair value is $2,040,000. Since the expected future net cash flows from the equipment are $2,445,000, which is higher than the carrying amount, we focus on the fair value for impairment testing. An impairment loss is recognized when the carrying amount exceeds the fair value. Therefore, the impairment loss that Torque Co. should report is the difference between the carrying amount and the fair value, which is $360,000 ($2,400,000 - $2,040,000).