Question

Book value $ 10.3 million, estimated undiscounted sum of future cash flows $ 5.9 million, fair value $ 5.4 million. Required: Determine the amount of the impairment loss, if any, reported in the 2024 income statement. Determine the reported book value of the assets in the year-end 2024 balance sheet.

a) Impairment loss = $ 4.9 million, Reported book value = $ 5.4 million
b) Impairment loss = $ 0.5 million, Reported book value = $ 10.3 million
c) Impairment loss = $ 5.9 million, Reported book value = $ 10.3 million
d) Impairment loss = $ 0.5 million, Reported book value = $ 5.9 million

Answer 1

The impairment loss would be $4.9 million, calculated by subtracting the fair value ($5.4 million) from the book value ($10.3 million). The reported book value of the assets on the year-end 2024 balance sheet would be the fair value, which is $5.4 million following the impairment.

Step-by-step explanation:

To determine the amount of the impairment loss, we compare the book value of the asset with the estimated undiscounted sum of future cash flows and the fair value. If the book value exceeds the estimated undiscounted future cash flows, an impairment has occurred, and the loss is measured by the amount by which the book value exceeds the fair value of the asset.

In this case, the book value of the asset is $10.3 million, and the estimated undiscounted sum of future cash flows is $5.9 million. As the book value is higher than the future cash flows, an impairment has occurred. The impairment loss is then the difference between the book value ($10.3 million) and the fair value ($5.4 million), which is $4.9 million (10.3 - 5.4).

Therefore, the reported book value of the assets in the year-end 2024 balance sheet after impairment would be the fair value, which is $5.4 million.