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	$	48,500,000
Accumulated depreciation		15,800,000
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		18,200,000

The fair value of the Arizona plant is estimated to be $19,000,000.

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 $19,000,000 instead of $18,200,000 and $32,950,000 instead of $18,200,000.

Answer 1

Y_- (Carrying amoustofan fair value Impairment loss - (Carrying ano Asset - Recoverable amounts Recoverable Amount = (fligher of to - or value in use.) Value in Use = present Value of futs - Cash flow expected to be derived from - amassets Honount = (Higher of verying amount of Plant de Cost - Accumulated Deposiciston - = $ 48,500,000 - $ 15,8.00,000 e $ 32700,000 Recoverable amount - fligher of fair value or value in Use = Alighoof $iq ocorror $ 18900,000 - je $19000,000 Impairszeut Loss : $ 32700, 000 - $ 19,000, 800 $ 13,700,000

Impairment loss should be inclicated under. Non operating Expenses? butry Imbairement loss of to Plant Al Dog_13700.000 -- $13700,000 4. Porbairment loss = $ 32700,000 - (Higher of $ 14000.00D_00 $19000,00) = $ 327001000 - $19000 000 13700,00 5 Porbairment loss - $. 32700.000 - (Higher of $32950,000 or $19000,000) So :3 $ 32,700,000 - $32,950,000 L$ 250,000) in this case, there is no _impairment coss