Question

For each of the following scenarios, indicate whether a loag-term asset has been impaired (Y for yes and N for no) and, if so, the amount of the loss that should be recorded. EB (Click the icon to view the data.) (Complete all input cells. Enter a "0" to show no loss.) Impaired? Amount Estimated Future (Y or N) of Loss Cash Flows Fair Value Book Value Asset $270,000 $230,000 $271,000 Equipment a $170,000 $175,000 Trademark $300,000 $19,000 $16,000 $45.000 Land C $5 million $4 million d. Factory building S5 million

Answer 1

When the fair value of the long-term asset falls below it carrying amount, an impairment loss shall be recognized provided the difference is not expected to be recovered. Impairment loss shall be recognized and accrued to obtain the asset's revaluation.

Impairment loss = Book value of asset – fair value of the asset

The various scenarios has been dealt accordingly indicating impairment or not:

Asset	Book value	Estimated Future cash flows	Fair value	Impaired (Y or N)	Amount of loss
a.Equipment	$230,000	$271,000	$270,000	N	--
b.Trademark	$300,000	$175,000	$170,000	Y	$130,000
c.Land	$45,000	$19,000	$16,000	Y	$29,000
d.Factory Building	$5million	$5miilion	$4million	N	--

For equipment, no impairment loss shall be recognized as fair value is greater than book value.

For trademark, the fair value is less than book value and it is not expected to recoup book value to upcoming cash flows. Hence, the impairment loss is recognized.

For land, the fair value is less than book value and it is not expected to recoup book value of $45,000 with upcoming cash flows of $ 19,000. Hence, the impairment loss is recognized.

For factory building, though fair value is less than book value, the firm is expected to recoup 100% of the book value of asset. Hence, impairment loss shall not be recognized.

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