CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Taylor Corporation has determined that a printing press that it purchased in 2008 for $400,000 has become partially obsolete due to newer equipment purchased in 2010. The press had a book value of $160,000 on December 31, 2010. At the end of the press's life, its estimated value is $40,000, and the net future cash flows from using the machine are estimated to be $90,000. These cash flows have a present value of $73,800 and $32,200, from future cash flows and residual value, respectively. What amount should Taylor record as "loss due to asset impairment" (under U.S. GAAP)?
A. $30,000
B. $32,000
C. $54,000
Explanation: When a fair market value is not available, the discounted future cash flows can be used as the cost basis. The present value of the future cash flows is $106,000 ($73,800 + $32,200). The loss is $54,000 ($160,000 book value less $106,000).

User Contributed Comments 5

User Comment
danlan The loss is 160000-(73800+32200)=54000
galgan to kalps: i think if book value is 129000, impairment shoudl not be recognized as it woudl be lower than undiscounted future cash flows...
jackwez $160K book value > PV of future cash flows (106)... impairment must be booked.
lavalyn Hmm. So we can only impair the asset if the carrying value exceeds the undiscounted future cash flows, but we impair it down to the discounted value?
najat yes, impairment loss= (Book value) - (Fair Value or Present Value of future Cash Flows)
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