Question

General Optic Corporation operates a manufacturing plant in Arizona. Due to a significant decline in demand for the product manufactured at the Arizona site, an impairment test is deemed appropriate. Management has acquired the following information for the assets at the plant:

Cost	$	34,500,000
Accumulated depreciation		14,400,000
General’s estimate of the total cash flows to be generated by selling the products manufactured at its Arizona plant, not discounted to present value		15,400,000

The fair value of the Arizona plant is estimated to be $12,000,000.

Required:
1. Determine the amount of impairment loss.
2. If a loss is indicated, prepare the entry to record the loss.
3. & 4. Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is (3) $13,000,000 instead of $15,400,000 and (4) $20,500,000 instead of $15,400,000.

Answer 1

Answer :

1)

Calculation of amount of impairment loss:

Impairment loss = Book value - Estimated fair value

= (34,500,000-14,400,000)-12,000,000

= 8,100,000

2) Entry to record loss:

Date	Account title	Debit	Credit
	Loss on impairment	$8,100,000
	Accumulated depreciation	$14,400,000
	Plan asset		$22,500,000

3)

Calculation of amount of impairment loss when undiscounted sum of future cash flows(13,000,000):

As per international financial reporting standards, the impairment loss recognized when an asset's book value(20,100,000) exceeds the undiscounted sum of future cash flows (13,000,000).

impairment loss is determined as follows:

Impairment loss = Book value - Estimated fair value

= 20,100,000 - 12,000,000

= 8,100,000

4)

Calculation of amount of impairment loss when undiscounted sum of future cash flows(20,500,000):

As per international financial reporting standards, the impairment loss recognized when an asset's book value(20,100,000) is less than the undiscounted sum of future cash flows (20,500,000).

Therefore,

There is no impairment loss.