Question

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 $ 7.7 million Estimated undiscounted sum of future cash flows 4.6 million Fair value 4.1 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 $8.0 million and fair value is $5.6 million. (For all requirements, Enter your answer in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5)).

Answer 1

1

As the Estimated undiscounted sum of future cash flows is less than Book value, there is impairment loss

Book value	7.7
Less: Fair value	4.1
Impairment loss	3.6	million

2

As the Estimated undiscounted sum of future cash flows exceeds Book value, there is no impairment loss

Impairment loss

0

million