Question

An asset group is being evaluated for an impairment loss. The following financial

information is available for the asset group:
Carrying value $100,000,000
Sum of the undiscounted
cash flows 95,000,000
Fair value 80,000,000
What amount of impairment loss, if any, should be recognized?

A. $0
B. $5,000,000
C. $15,000,000
D. $20,000,000

Answer 1

D. $20,000,000

Step-by-step explanation:

Impairment loss occurs when an asset has lost beyond its recorded book value. In other words, the business believes that the asset has depreciated more than the book value.

Calculation of impairment loss for an asset is a two-step process.

1. Comparison of the carrying cost or book value ( cost price - accumulated depreciation) with the recoverable amount normally represented by undiscounted cash flow. Establish if the carrying cost is greater than the undiscounted cash flow

2. Get the difference between the carrying cost and the fair market value.

In the case, impairment loss will be

=$ 100,000- $80,000

=$20,000