Question

A company reports the following information at year-end:

book value estimated cash flows fair value
building $500,000 $380,000 $360,000
patent $35,000 $40,000 $38,000
copyright $40,000 $38,000 $39,000
machine $100,000 $120,000 $85,000

based on the above information, what is the total amount of impairment loss that the company should record at year-end?
a. $141,000.
b. $126,000.
c. $123,000.
d. $122,000.

Answer 1

To find the total impairment loss, compare the book value and the fair value of the assets. Sum the differences when book value exceeds fair value. The total impairment loss is $156,000, which does not match any of the provided options.

Step-by-step explanation:

To calculate the total amount of impairment loss that the company should record at year-end, we compare the book value to the fair value of each asset. If the book value exceeds the fair value, an impairment loss equivalent to the difference is recognized. Here's a breakdown for each asset:

• Building: Book Value - Fair Value = $500,000 - $360,000 = $140,000
• Patent: Book Value - Fair Value = $35,000 - $38,000 = $0 (No impairment since fair value is higher)
• Copyright: Book Value - Fair Value = $40,000 - $39,000 = $1,000
• Machine: Book Value - Fair Value = $100,000 - $85,000 = $15,000

Adding up the impairment losses gives us: $140,000 (Building) + $0 (Patent) + $1,000 (Copyright) + $15,000 (Machine) = $156,000 total impairment loss.