Sanders Corporation operates a factory in Arizona. Due to a change in business c

Question

Sanders Corporation operates a factory in Arizona. Due to a change in business climate, an impairment test is deemed appropriate. Management has acquired the following information for the assets at the plant: Cost $ 243,000,000 Accumulated depreciation 122,000,000 Estimate of the total cash flows to be generated by selling the products manufactured at the Arizona factory, not discounted to present value 110,000,000 Present value of estimated future cash flows 94,000,000 Estimated fair value of the Arizona factory determined by appraisal 90,000,000

Explanation / Answer

Book value of the asset is 243-122= 121,000,000 and the undiscounted value of the future cash flow is 110,000,000.

So there is impaairment loss.

Now impairment loss is the difference between book value of asset minus the recoverable amount.

And the recoverable amount is higher of discounted present value and fair value of asset which is 94,000,000

So impairment loss is 27,000,000

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