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 Accumulated depreciation 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 $ 52,500,000 16,200,000 19,000,000 The fair value of the Arizona plant is estimated to be $21,000,000. 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 $21,000,000 instead of $19,000,000 and $36,550,000 instead of $19,000,000. Complete this question by entering your answers in the tabs below. Req 1 and 2 Reg 3 Req 4 and 5 Determine the amount of impairment loss. If a loss is indicated, where would it appear in General Optic's multiple-step income statement? (Enter your answer in whole dollars.) Impairment loss Location on income statement Req 1 and 2 Req3 >

Answer 1

Particulars Cost Accumulated depreciation Carrying amount Amount ($) 5,25,00,000 1,62,00,000 3,63,00,000 Less: Value in use refers to the present value of the future cash flows which are expected to be derived from an asset. 2,10,00,000 Fair value of Arizona plant Value in use not discounted to present value (Given) 1,90,00,000 If discounting is done, the above value in use will get further reduced from its present value, as a discounted value is always less than the actual value, therefore, in the absence of discounting rate, Recoverable amount = Higher of the asset's fair value less its cost of disposal and value in use 2,10,00,000 Impairment loss Carrying amount - Recoverable amount 1,53,00,000 The above impairment loss will appear under the heading of other operating expense in the income statement.