Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management...

Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management decided to test the assets of the division for possible impairment. The test revealed the following: book value of division’s assets, $26.5 million; fair value of division’s assets, $21 million; sum of estimated future cash flows generated from the division’s assets, $24 million. What amount of impairment loss should C&R recognize?

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Expert Solution

Given data

book value of divisions asset = $ 26.5 millions

fair value of divisions asset = $21 millions

estimated cash flow generated in future of divisions asset = $24 millions

CALCULATION OF IMAIRMENT LOSS :

impairment loss is the loss by which the carrying amount of an asset (or) the cash generating unit exceeds the recoverable amount.

carrying amount is = $26.5 millions

The recoverable amount is calculated on the fair market value of an asset and the value in use which ever is higher.

in this case the value in use is the future cash flows generated by the asset.

therefore the recoverable amount = $21 million (or) $24 million which ever is higher will be considered

so the recoverable amount = $ 24 millions

the impairment loss of the asset = $26.5 - $24

= 2.5 millions

ekkarill92 answered 1 year ago

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