Question

Boeing has equipment with a carrying amount 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 (if any) should Torque report as an impairment to its equipment?

A) No impairment should be reported.
B) $360,000
C) $45,000
D) $405,000

Answer 1

C) $45,000

Step-by-step explanation:

Under US GAAP, an asset is impaired if carrying value is more than its future undiscounted cash flows

carrying value= $2,400,000

future undiscounted cash flows=$2,445,000

In other words, the fair value of equipment which stood at $2,040,000, is irrelevant in ascertaining the impairment.

Since the expected future net cash flows are more than the carrying value by $45,000($2,445,000-$2,440,000), the equipment can be said to have been impaired by $45,000