Recording an Impairment Loss Della Bee Company purchased a manufacturing plant b

Question

Recording an Impairment Loss

Della Bee Company purchased a manufacturing plant building 10 years ago for $1,300,000. The building has been depreciated using the straight-line method with a 30-year useful life and 10% residual value. Della Bee's manufacturing operations have experienced significant losses for the past two years, so Della Bee has decided that the manufacturing building should be evaluated for possible impairment. Della Bee estimates that the building has a remaining useful life of 15 years, that net cash inflow from the building will be $50,000 per year, and that the fair value of the building is $380,000.

1) Determine whether an impairment loss should be recognized.

2) If an impairment loss should be recognized, make the appropriate journal entry. If an amount box does not require an entry, leave it blank. If an impairment loss should not be recognized, select "No entry required" and leave the amount boxes blank.

Explanation / Answer

Accumulated Depreciation = ($1300000-130000)/30

= 39000 *15

= $ 585000

Carrying Amount = $ 1300000 - $ 585000

= $715000

fair value of Building = $380000

net cash flow from building = 50000*15

= $ 750000

Recoverable amount is higher of fair value or cash inflow = $ 750000

Carrying amount is $ 715000 and recoverable amount is $ 750000, hence there is no impairment loss.

2) No entry required

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