Question

How might your solution differ if Chadwick Enterprises, Inc., prepares its financial statements according to International Financial Reporting Standards? Assume that the fair value amount given equals both (a) the fair value less costs to sell and (b) the present value of estimated future cash flows.

           Book value                                                             $6.5 million

Estimated undiscounted sum of future cash flows       4.0 million

Fair value less costs to sell                                       3.5 million

Present value of estimated future cash flows              3.5 million

Answer 1

a) The fair value less costs to sell
According to IFRS impairment loss to be recognized when an asset’s book value exceeds the higher of the asset’s value-in-use (present value of estimated future cash flows) and fair value less costs to sell. In this case, value-in-use and fair value less costs to sell are the same, $3.5 million
b) The present value of estimated future cash flows.
A loss is indicated because book value ($6.5 million) exceeds this amount.The loss is the difference between book value and the recoverable amount, which also is the higher of the asset’s value-in-use (present value of estimated future cash flows) and fair value less costs to sell. Therefore, the amount of impairment loss is the same as under U.S. GAAP, $3 million.
Book Value	$         6.50	Million
Recoverable amount	$         3.00	Million
Impairment loss	$         3.50	Million