Vegetarian Delights has been experiencing declining market conditions for its sp

Question

Vegetarian Delights has been experiencing declining market conditions for its specialty foods division. Management decided to test the operational assets of the division for possible impairment. The test revealed the following: book value of division's assets, $33.5 million; fair value of division's assets, $30 million; sum of estimated future cash flows generated from the division's assets, $32 million.

What amount of impairment loss should Vegetarian Delights record?

Vegetarian Delights has been experiencing declining market conditions for its specialty foods division. Management decided to test the operational assets of the division for possible impairment. The test revealed the following: book value of division's assets, $33.5 million; fair value of division's assets, $30 million; sum of estimated future cash flows generated from the division's assets, $32 million.

Explanation / Answer

If the undiscounted future cash flows from an asset are less than the asset's book value, an impairment loss must be reported.

The amount of the impairment loss is measured by subtracting the asset's fair value from its book value.

So, Impairment loss = $33.5 million - $ 30 million = $3.5 million

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