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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Oneonta & Co. owns equipment with a cost of $300,000 and accumulated depredation of $120,000. The present value of the expected net cash flows from using this equipment is $115,000 (fair value). Calculate the impairment loss.

To determine

Calculate the impairment loss of the equipment.

Explanation

Impairment loss of assets:

Impairment loss of assets arises when the carrying value of the assets recorded on the balance sheet of the company exceeds its fair market value.

Calculate the impairment loss of the equipment as follows:

In this case, the expected net cash flow ($115,000) is less than the book value of asset ($300,000); hence the equipment would be impaired and the impairment loss is recognized.

Calculate the impairment loss of equipment as follows:

Impairment loss = Fair value Book value=$115,000$180,000

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