Regis Inc. bought a machine on January 1, 2004 for $400,000. The machine had an
ID: 2456300 • Letter: R
Question
Regis Inc. bought a machine on January 1, 2004 for $400,000. The machine had an expected life of 20 years and was expected to have a salvage value of $40,000. On July 1, 2014, the company reviewed the potential of the machine and determined that its undiscounted future net cash flows totaled $200,000 and its discounted future net cash flows totaled $140,000. If no active market exists for the machine and the company does not plan to dispose of it, what should Regis record as an impairment loss on July 1, 2014?
Explanation / Answer
Impairment loss = Carrying amount – Recoverable amount
= [400000 – 189000]
= $ 211000
(NOTE A):- Depreciation from January 1, 2004 to June 30 , 2014 i.e., 10.5 years will be charged/provided for.
2. Recoverable amount = Discounted future net cash flows = $ 140000 (Given in the question)
Impairment loss = Carrying amount – Recoverable amount
= 211000 – 140000
=$ 71000
Conclusion :- An impairment loss on July 1, 2014 = $ 71000