Question

crane company bought a machine on january 1, 2011 for $791000. the machine had an expected llife of 20 years and was expected to have a salvage value of $75000. on july 1, 2021, the company reviewed the potential of the machine and determined that its future net cash flows totaled $390000 and its fair value was $270000. if the company does not plan to dispose of it, what should crane record as an impairment loss on july 1, 2021

Answer 1

Answer: Impairment loss of $145,100

Step-by-step explanation:

First find the Net book value:

= Cost - Accumulated Depreciation

Depreciation = (791,000 - 75,000) / 20

= $35,800

Net Book value = 791,000 - (35,800 * 10.5 years)

= $415,100

Find Net Realizable Value which is the lower amount between the future net cash flows and fair value.

= $270,000

Impairment loss = Net realizable value - Book value

= 270,000 - 415,100

= ($145,100)