Question

Isa Company has equipment that, due to changes in use, is reviewed for possible impairment. These asset's carrying amount is $400,000 ($500,000 cost less $100,000 accumulated depreciation). The expected future net cash flows (undiscounted) from the use of the asset and its eventual disposition are determined to be $380,000 and it has a current market value of $350,000. What is the amount of the impairment, if any, that should be recorded by Isa Company?

Answer 1

The impairment loss recorded by Isa Company is $50,000.

Step-by-step explanation:

The impairment loss that should be recorded by Isa Company can be calculated as follows:

Carrying amount of the asset - Recoverable amount (lower of future net cash flows or fair market value) = Impairment loss

In this case, the carrying amount of the asset is $400,000 and the recoverable amount is $350,000 (fair market value). Therefore, the impairment loss is $400,000 - $350,000 = $50,000.