Chadwick Enterprises, Inc., operates several restaurants throughout the Midwest.
ID: 2398524 • Letter: C
Question
Chadwick Enterprises, Inc., operates several restaurants throughout the Midwest. Three of its restaurants located in the center of a large urban area have experienced declining profits due to declining population. The company’s management has decided to test the assets of the restaurants for possible impairment. The relevant information for these assets is presented below.
Required:
1. Determine the amount of the impairment loss.
2. Determine the amount of the impairment loss assuming that the estimated undiscounted sum of future cash flows is $7.2 million and fair value is $5.2 million.
(For all requirements, Enter your answer in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5)).
Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount Book Value 6,900,000.00 Impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount Recoverable amount: the higher of an asset's fair value less costs of disposal* (sometimes called net selling price) and its value in use Value In use 4,200,000.00 Fair Value 3,700,000.00 Thus Higher is Value in Use i.e.4.2m Impairment loss = 6.9m - 4.2m 2,700,000.00 b) Value In use 7,200,000.00 Fair Value 5,200,000.00 Thus Higher is Value in Use i.e.7.2m Impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount In above Carrying amount or Book value of 6.9m is less than recoverable amount of 7.2m. Thus no impairment loss