A company bought machinery on January 1, 2011, for $200,000. On January 2, 2013, 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?

Question

Quizplus · Accepted Answer

The impairment loss is calculated as the difference between the book value and the fair value or the present value of expected cash flows, whichever is lower. In this case, both fair value and present value of expected cash flows are $60,000, which is lower than the book value of $100,000. Therefore, the impairment loss is $100,000 - $60,000 = $40,000 (Option C).

A Company Bought Machinery on January 1, 2011, for $200,000