CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

The net carrying value of a plant is $3 million. The plant is categorized as assets held for use. Based on the firm's estimate, the undiscounted future cash flows from the plant will total $650k a year for the next 5 years. The fair value of the plant is estimated to be $2.5 million. Under U.S. GAAP, the impairment loss should be ______.
A. $0
B. $250k
C. $500k
Explanation: Since the carrying value ($3 million) is less than the undiscounted future cash flows ($650,000 x 5 = $3.25 million), no impairment loss should be recognized.

User Contributed Comments 2

User Comment
czar Loss recognition: carrying value is MORE than UNDISCOUNTED future cash flows

Loss amount, if recognisable: is BV - Fair value or BV - Present Value of future cash flows (DISCOUNTED)
scottm8571 IFRS and GAAP differ here. Cash flows are discounted in IFRS, and not in GAAP. Potential curveball here.
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