Question

Your company rents computers to local businesses and schools. You have 1,600 computers with a book value of $163,000. 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 The fair value of the computers is estimated to be $123,500 because of their outdated technology. Your company should report an asset impairment loss of:

Answer 1

Your company should report an asset impairment loss of : $39,500

Step-by-step explanation:

Impairment loss is recognized when the Carrying Amount of an Asset exceed its Recoverable Amount.

Carrying Amount

Carrying Amount is the Cost of Asset less its Accumulated Depreciation

Carrying Asset of Computers = $163,000

Recoverable Amount

Recoverable Amount is the Higher of :

1. Value in Use of Asset or
2. Fair Value less Cost to Sale the Asset

In this case the Recoverable amount is $123,500

Analysis for impairment loss

Carrying Amount : $163,000 > Recoverable Amount : $123,500,

Thus we have an impairment situation.

Impairment loss is $39,500 ($163,000 - $123,500)