Regis Inc. bought a machine on January 1, 2011 for $800,000. The machine had an expected life of 20 years and was expected to have a salvage value of $80,000. On July 1, 2021, the company reviewed the potential of the machine and determined that its future net cash flows totaled $400,000 and its fair value was $280,000. If the company does not plan to dispose of it, what should Regis record as an impairment loss on July 1, 2021?

Question

Business

Alexia Hampton

4 September, 06:30

Regis Inc. bought a machine on January 1, 2011 for $800,000. The machine had an expected life of 20 years and was expected to have a salvage value of $80,000. On July 1, 2021, the company reviewed the potential of the machine and determined that its future net cash flows totaled $400,000 and its fair value was $280,000. If the company does not plan to dispose of it, what should Regis record as an impairment loss on July 1, 2021?

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Answers (1)

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Royce Richard · Answer 1

Carrying amount of machine is 422.000 and impairment loss is equal to 142.000

Explanation:

Step 1. Given information.

Cost of the machine 800.000 Expected life 20 years Time between 2011 and 2021 = 10.5 years Fair value $280.000

Step 2. Formulas needed to solve the exercise.

Carrying amount of machine = Cost of the machine

- [Cost of the machine

-salvage value) / expected life * time between 2011 and 2021]

Impairment loss = Carrying amount - Fair value

Step 3. Calculation.

Carrying amount of machine = 800,000 - [ (800,000-80,000) / 20 * 10.5 years]

= 422,000

Impairment loss = Carrying amount - Fair value

= 422,000 - 280,000

= 142,000

Step 4. Solution.

Carrying amount of machine is 422.000 and impairment loss is equal to 142.000