Sandhill Co. has equipment with a carrying amount of $739,700. The expected future net cash flows...

Sandhill Co. has equipment with a carrying amount of $739,700. The expected future net cash flows from the equipment are $744,780, and its fair value is $617,950. The equipment is expected to be used in operations in the future. What amount (if any) should Sandhill report as an impairment to its equipment?

Impairment to be reported ______

Expert Solution

Before answer this question I am assuming that US GAAP is applied in the given question and not the IFRS, IAS 36.

As per US GAAP the asset is impaired only after two tests.

First test is ascertaining that Undiscounted cash flow is lower than book value or not. If Book value is lower than undiscounted cash flow the impairment will be done otherwise not.

Second step will be dependent on first step. If in first step asset’s book value is lower than undiscounted cash flows then impairment will be done in following manner.

Impairment loss= Book value –Fair value of asset.

Answer--- Impairment to be reported $ 0

Since the undiscounted cash flow from equipment is greater than book value no impairment will be done.

Please leave a comment in case of any confusion.

ekkarill92 answered 2 years ago

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