Question

Robert Plant Inc. owns equipment for which it paid $90 million. At the end of 2021, accumulated depreciation on the equipment was $27 million. Due to adverse economic conditions, Plant’s management determined that it should assess whether an impairment should be recognized for the equipment. The estimated future cash flows (without discounting) to be provided by the equipment total $60 million, and its fair value at that point totals $40 million. Under these circumstances, Plant:

A)Would record no impairment loss on the equipment.

B) Would record a $3 million impairment loss on the equipment.

C) Would record a $23 million impairment loss on the equipment.

D)Would record a $30 million impairment loss on the equipment.

Answer 1

Solution:

The Answer is B) Would record a $3 million impairment loss on the equipment.

Explanation:

1)

Impairment loss	(In Millions)
Carrying value of equipment($90 M - $27 M)	$                      63
Less: Recoverable Amount(Note:2)	$                      60
Impairment loss	$                        3

2)

	(In Millions)
Recoverable Amount:
Estimated Future cash flow	$                      60
Fair Value	$                      40
Higher of future cashflow and fair value	$                      60