Use the following information for questions.
On January 1, 2011, Fredrichs Inc.purchased equipment with a cost of €3,060,000, a useful life of 12 years and no salvage value.The company uses straight-line depreciation.At December 31, 2011, the company determines that impairment indicators are present.The fair value less cost to sell the asset is estimated to be €2,600,000.The asset's value-in-use is estimated to be €2,365,000.There is no change in the asset's useful life or salvage value
-The 2011 income statement will report Loss on Impairment of

Question

Quizplus · Accepted Answer

The loss on impairment is calculated as the carrying amount of the asset (original cost - accumulated depreciation) minus the higher of fair value less costs to sell or value-in-use. In this case, the carrying amount is €3,060,000 - (1/12 x €3,060,000) = €2,707,500. The higher of fair value less costs to sell and value-in-use is €2,600,000, so the loss on impairment is €107,500. Therefore, B is the correct answer, as it is the closest option to this value.

Use the Following Information for Questions