- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 26. Long-lived Assets
- Subject 5. Impairment of Assets
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. |