Question

Kohlman Corporation owns machinery with a book value of $380,000. It is estimated that the machinery will generate future cash flows of $350,000. The machinery has a fair value of $280,000.

Kohlman should recognize a loss on impairment of:
a. $ -0-.b. $ 30,000.c. $100,000.d. $ 70,000.

Answer 1

c. $100,000.

Step-by-step explanation:

Since the book value is more than the generated future cash flows so book value cannot be recovered. In this case, the generated future cash flows are ignored

In this scenario, we compare the values between book value and the fair value of machinery, the difference would be the loss on impairment of the asset

In mathematically,

= Book value - fair value

= $380,000 - $2380,000

= $100,000