Chadwick Enterprises, Inc., operates several restaurants throughout the Midwest.

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 Book value Estimated undiscounted sum of future cash flows Fair value 8.5 million 5.0 million 4.5 mi11ion 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 $8.8 million and fair value is $6.0 million. (For all requirements, Enter your answer in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5). 1.Ilmpairment loss?$ 2. Impairment loss 4,0|million million

Explanation / Answer

Test for imapairment: if book value is less than the estimated undiscounted sum of future cash flows there is imapirment loss.

Amount of impairment loss: amount of impairment loss is the difference between book value and the fair value of assets.

in the second case there is no impairment loss as book value (8.5 million) is not less than the estimated undiscounted sum of future cash flows (8.8 million).

Thus, impairment loss is $0

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