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Chadwick Enterprises, Inc., operates several restaurants throughout the Midwest. Three of its restaurants located in the...

Chadwick Enterprises, Inc., operates several restaurants throughout the Midwest. Three of its restaurants located in the center of a large urban area have experienced declining profits due to declining population. The company’s management has decided to test the assets of the restaurants for possible impairment. The relevant information for these assets is presented below.

Book value $ 8.5 million
Estimated undiscounted sum of future cash flows 5.0 million
Fair value 4.5 million


Required:
1. Determine the amount of the impairment loss.
2. Determine the amount of the impairment loss assuming that the estimated undiscounted sum of future cash flows is $8.8 million and fair value is $6.0 million.

(Negative amounts should be indicated by a minus sign. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5)).

Solutions

Expert Solution

Answer- 1)- The amount of the impairment loss = $4 million.

Explanation- The impairment loss will be recognized when book value is exceed from estimated undiscounted sum of future cash flows.

Book value of assets = $8.5 million

Estimated undiscounted sum of future cash flows = $5.0 million.

Impairment loss = Book value of assets- Fair value of assets

= $8.5 million - $4.5 million

= $4 million.

2)- The amount of the impairment loss = Nil.

Explanation- There is no impairment loss because estimated undiscounted sum of future cash flows is exceed from book value of assets.

Book value of assets = $8.5 million

Estimated undiscounted sum of future cash flows = $8.8 million.

ekkarill92 answered 2 years ago
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