Samson Company has a machine with the following data: Is the machine impaired?

Question

Samson Company has a machine with the following data:  Is the machine impaired?

Quizplus · Accepted Answer

According to the question, we need to determine if the machine is impaired or not. Impairment occurs when the carrying amount (i.e. net book value) of an asset exceeds its recoverable amount. The recoverable amount is the higher of the fair value of the asset and its value in use (i.e. the estimated future cash flows from the asset).

Option A is incorrect because it states that the net book value exceeds the estimated future cash flows, which means the machine is not impaired.
Option B is incorrect because it states that the estimated future cash flows exceed the fair value, which does not indicate impairment.
Option C is incorrect because it states that the fair value is less than the net book value, which is not necessarily an indication of impairment.

Option D is correct because it states that the estimated future cash flows are less than the net book value, which means the machine is impaired.

Samson Company Has a Machine with the Following Data