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Basic Question 3 of 15
A firm had an asset with a carrying value of $300,000. Its fair value is $180,000, and the future discounted cash flows from the use of the asset are estimated to be $200,000. Under U.S. GAAP, the firm should recognize an ______.
B. extraordinary loss of $100,000
C. impairment loss of $120,000
A. extraordinary loss of $20,000
B. extraordinary loss of $100,000
C. impairment loss of $120,000
User Contributed Comments 7
| User | Comment |
|---|---|
| danlan | If the fair value is available, use it; otherwise, use the discounted cash flows. |
| guna | First look at Fair value and Cash flows, if FV < CF, then impairment loss = Carrying Value - Fair value |
| hegde | when both fair value & future discounted cash flow is available and FDC < FV then is it Ok to take FDC on the basis of conservatisam? |
| rfvo | Good fundemental question |
| prajacti | think about it hegde, it is highly unlikely that fair value will be less than future discounted CF. who will pay more than future benefit? |
| quanttrader | carrying value > undiscounted cash flows. Therefore impairment charge of carrying value - fair value. |
| jzty | I think this problem is unclear. We do not know the undiscounted cash flows. We are comparing the carrying value and the undiscounted cash flows, not discounted cash flows. |
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Learning Outcome Statements
explain and evaluate how impairment and derecognition of property, plant, and equipment and intangible assets affect the financial statements and ratios
CFA® 2024 Level I Curriculum, Volume 2, Module 7.