Question

King corporation owns machinery with a book value of $760,000. It is estimated that the machinery will generate future cash flows of $700,000. The machinery has a fair value of $560,000. King should recognize a loss on impairment of?

Answer 1

King should recognize a loss on impairment of $60,000

Step-by-step explanation:

In terms of IAS 36, Impairement happens when the Carring Amount of an Asset is Higher than the Recoverable Amount of an Asset.

Recoverable Amount

Recoverable Amount is the Higher of :

(a) Assets Value In Use, and

(b) Fair Value Less Cost to Sell

therefore:

Assets Value In Use = $700,000

Fair Value Less Cost to Sell = $560,000

therefore Recoverable Amount is $700,000 ( higher)

Carrying Amount

Book Value = Carrying Amount = $760,000

Impairement Anaylsis

Carrying Amount ($760,000) > Recoverable Amount ( $700,000)

Recognised Imparement loss is $60,000 ($760,000- $700,000)