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. & 2. Determine the amount of impairment loss. If a loss is indicated, where would it appear in General Optic’s multiple-step income statement? 3. If a loss is indicated, prepare the entry to record the loss.

4. & 5. Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is $13,000,000 instead of $15,400,000 and $20,500,000 instead of $15,400,000

1 & 2.

Impairment Loss
Location on income statement

3. Create a General Journal for Record the impairment loss.

4 & 5.

Impairment loss
Impairment loss

Answer 1

tion statement : Answer: 1) calculation of Impairment loss Impairment Logs = Boole valeve - Estimated fair value Book value = cost - Accumulated depreciation = $ 34,500,000 - $14,400,000 :. Book value = $ 20,100.000 Impairment Loss = $20,100,000 - $12,000,000 :: Impairment Logg = * 8100,000 om of Impairment Loss location on income The Loos will be reported in the income statement along with the operating expenses. 3) Journal entry for Impairment lossa pate particulars LA Debit credit Loss on Impairment Ale or $8.100,000| Accumulated depreciation Af Dr $14.400,000 To plant Assets Being Impairment lors] 9 1ηραίτment loss - Impairment Loss = Book value - Estimated fair value Book value = cost – Accumulated depreciation - $34,500,000 - $14.400,000 . Book vakie = $ 20,100000 Impairment Loss = $20,100000 - $12,000,000 :: Impairment loss = $ 8,100,000. 5) As per internalional Financial reporting standards, the impairment losa Yecognized when an Assel's book value is $ 20,100,000 is less Han the undiscounted sumt fulere cash flows is $20,500,000. .. there is no impairment loss. $22,500,000