A company bought machinery on January 1, 2019, for $200,000. On January 2, 2021, the machinery had a book value of $100,000. It is estimated that the machine will generate future cash flows of $70,000 and its current fair value is $60,000. How much impairment loss should be recorded?
A)$0
B)$30,000
C)$40,000
D)$100,000

Question

Quizplus · Accepted Answer

The impairment loss is the difference between the book value and the fair value of the asset. In this case, the book value is $100,000 and the fair value is $60,000, resulting in a difference of $40,000. This means that an impairment loss of $40,000 should be recorded. Choice A is incorrect because there is a difference between the book value and the fair value of the asset, indicating impairment. Choice B is incorrect because the impairment loss is based on the difference between the book value and fair value, not the estimated future cash flows. Choice D is incorrect because it is the original cost of the asset, which is not relevant to calculating the impairment loss.

A Company Bought Machinery on January 1, 2019, for $200,000