Question

Exercise 11-27 (Algo) Impairment; property, plant, and equipment [LO11-8]

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 $ 9.3 million

Estimated undiscounted sum of future cash flows 5.4 million

Fair value 4.9 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 $9.6 million and fair value is $6.4 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)).

Answer 1

Youva Date: ANSWER. STEP I To check whether there is Impairment. Undiscounted Cash flow (-) Book value. . 5.4 million (9.3 million) (3.9 million) If negative, then there is Impairment. STEP Impairment loss = = = fair valve - 4.9 million - 4.4 Million. Book valve 913 Million 2 STEPI flow undiscoured Case Book valve (- 9.6 millon (9.3 million) 0.3 Million Positive, so there will be no Impairment.