Question 7: 5 Points Fryer Inc. owns equipment for which it paid $90 million. At

Question

Question 7: 5 Points Fryer Inc. owns equipment for which it paid $90 million. At the end of 2018, it had accumulated depreciation on the equipment of S28 million. Due to adverse economic conditions, Fryer's management determined that should assess whether an impairment should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment's fair value at that point is $40 million. What amount of impairment loss will Fryer report in the Income Statement?

Explanation / Answer

Impairment is recorded when an asset's carrying amount is not recoverable.

An asset is not recoverable if the carrying amount (90-28 = 62 Million) exceeds the expected future cash flows( 60 Million ) from the asset on an undiscounted basis.

As per the Question,

Undiscounted Future Cashflow = 60 Million

Carrying amount = 62 Million

So the impairment exists.

The impairment loss is equal to the difference between the carrying amount (62 million) of the assets and the fair value (40 million) of the assets.

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Carrying Value $        62.00 Million Fair Value $        40.00 Million Impairement Loss $        22.00 Million

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