Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country indicates that Rice should investigate for possible impairment. Below is information related to the plant's assets ($ in millions): The amount of impairment loss that Rice should recognize according to U.S. GAAP and IFRS, respectively, is:

Question

Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country indicates that Rice should investigate for possible impairment. Below is information related to the plant's assets ($ in millions):  The amount of impairment loss that Rice should recognize according to U.S. GAAP and IFRS, respectively, is:

Quizplus · Accepted Answer

According to both U.S. GAAP and IFRS, if there are indicators of impairment, the company should test the recoverability of the assets. The recoverable amount is the higher of the asset's fair value less costs to sell and its value in use. If the recoverable amount is less than the carrying amount, the asset is impaired and an impairment loss is recognized.

In this case, the carrying amount of the plant is $200 million and the fair value less costs to sell is $160 million. This means the recoverable amount is $160 million. Since the carrying amount is higher than the recoverable amount, an impairment loss must be recognized. The impairment loss is the difference between the carrying amount and the recoverable amount, which is $40 million. Therefore, the answer is option C.

Rice Industries Owns a Manufacturing Plant in a Foreign Country