Question

Your company rents computers to local businesses and schools. You have 1,000 computers with a book value of $160,000. As a result of changing technology, your computers are more difficult to rent so you must drastically reduce your rental price, which causes a decrease in estimated future cash flows. The fair value of the computers is estimated to be $125,000 because of their outdated technology. Your company should report an asset impairment loss of:

Answer 1

$35,000

Step-by-step explanation:

An asset is said to be impaired when the carrying amount is more than the recoverable amount. The recoverable amount is the higher of the value in use which is the present value of the future cash flows expected from the use of the asset and the fair value less cost to sell of the asset.

The amount of impairment to be recognized is the difference between the book value of the asset and the fair value. This will ensure that the asset is not carried at an amount higher than it's fair value.

Impairment loss

= $160,000 - $125,000

= $35,000