Question

Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management decided to test the assets of the division for possible impairment. The test revealed the following: book value of division’s assets, $28.9 million; fair value of division’s assets, $22.2 million; undiscounted sum of estimated future cash flows generated from the division’s assets, $29.2 million. What amount of impairment loss should C&R recognize?

Answer 1

0

Step-by-step explanation:

Since the estimated future cash flows generated from the division’s assets, $29.2 million, greater than book value of division’s assets, $28.9 million; Therefore no impairment loss should C&R recognize.

Answer 2

The amount of impairment loss should C&R recognize is $6,700,000

Step-by-step explanation:

According to the given data we have that the book value of division's assets is $28.9 million and fair value of division’s assets is $22.2 million.

Therefore, in order to calculate the amount of impairment loss should C&R recognize we would have to use the following formula:

impairment loss=book value of division's assets - fair value of division’s assets

impairment loss=$28.9 million-$22.2 million

impairment loss=$6,700,000

The amount of impairment loss should C&R recognize is $6,700,000