Question

Waterway Industries has equipment with a carrying amount of $2510000. The expected future net cash flows from the equipment are $2545000, and its fair value is $2043000. The equipment is expected to be used in operations in the future. What amount (if any) should Waterway report as an impairment to its equipment? No impairment should be reported. $502000. $467000. $35000.

Answer 1

Calculation of impairment loss is as follows :-

Impairment loss = carrying value - (future cash flows or fair value which is higher)

here we have all values as follows

Carrying value = 2510000

Future cash flows = 2545000

Fair value = 2043000

Here the future cash flows are higher to fair value of the equipment

Then the carrying value is to be subtracted by the future cash flows because the future cash flows are higher than fair value of the equipment.

Then the formula for impairment loss is as follows :-

Impairment loss = carrying value - future cash flows

impairment loss = 2510000 - 2545000

= (35000)

Here we are getting more cash flows than carrying value so we are getting negative impatient loss

Negative impairment loss never be said as any loss

So there is no impairment loss to the given equipment.

Here no impairment loss is to be reported.

Correct answer is NO IMPAIRMENT SHOULD BE REPORTED.

These are all the formula and explanations required to solve the given question.

I hope, all the above given formulas and calculations are useful and helpful to you.

Thank you.