Question

Hudson Corp. operates several factories that manufacture medical equipment. The factories have a historical cost of $200 million. Near the end of the company’s fiscal year, a change in business climate related to a competitor’s innovative products indicated to Hudson’s management that the $170 million carrying amount of the assets of one of Hudson’s factories may not be recoverable. Management identified cash flows from this factory and estimated that the undiscounted future cash flows over the remaining useful life of the factory would be $150 million. The fair value of the factory’s assets is reliably estimated to be $135 million. The change in business climate requires investigation of possible impairment. Which of the following amounts is the impairment loss?

A) $15 million.
B) $20 million.
C) $35 million.
D) $65 million.

Answer 1

C) $35 million.

Step-by-step explanation:

The computation of the impairment loss is shown below:

= Carrying amount of the assets - fair value of the factory assets

= $170 million - $135 million

= $35 million

Since the carrying amount exceeds the fair value of the asset so the impairment loss is recorded and hence the same is to be considered.

Hence, the correct option is c.