Chadwick Enterprises Inc. operates several restaurants throughout the Midwest. T
ID: 2466948 • 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 present below.
Book value $6.5 Million
Estimated undiscounted sum of future cash flows $4.0 Million
Fair value $3.5 Million
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 $6.8 million and fair value is $5 million.
Explanation / Answer
Impairment Loss = Carrying Amount - Net Recoverable Amt where Carrying amount = Book value of asset and recoverable amount = Fair Value or Value in use whichever is higher A. Recoverable Amt : $ 4 million Fair value $3.5 M or Value in use $4m , which ever is higher Impairment Loss = Carrying Amount - Net Recoverable Amt = $6.5 M - $4M = $2.5 M B Recoverable Amt : $ 6.8 million Fair value $5 M or Value in use $ .8m , which ever is higher No impairment loss is to be ecognised as the recoverable amount is more than the carrying amount