ExpertHard1 markMultiple Choice
CPA · Question 02 · Area II: Balance Sheet Accounts
Apex Corp. owns a manufacturing facility with the following data at year-end:<br/>- Net carrying amount (book value): $2,400,000<br/>- Undiscounted future cash flows expected from use and disposal: $2,100,000<br/>- Fair value of the asset: $1,800,000<br/>- Costs to sell: $50,000<br/><br/>What amount of impairment loss, if any, should Apex Corp. recognize under ASC 360?
Apex Corp. owns a manufacturing facility with the following data at year-end:<br/>- Net carrying amount (book value): $2,400,000<br/>- Undiscounted future cash flows expected from use and disposal: $2,100,000<br/>- Fair value of the asset: $1,800,000<br/>- Costs to sell: $50,000<br/><br/>What amount of impairment loss, if any, should Apex Corp. recognize under ASC 360?
Answer options:
A.
$0 - no impairment required
B.
$300,000
C.
$550,000
D.
$600,000
How to approach this question
First perform the recoverability test: compare undiscounted future cash flows to carrying amount. If cash flows < carrying amount, the asset is impaired. Then measure impairment as carrying amount minus fair value (for held and used assets, do not deduct costs to sell).
Full Answer
D.$600,000✓ Correct
ASC 360 requires a two-step impairment test for long-lived assets held and used: (1) Recoverability test - if undiscounted cash flows < carrying amount, the asset is impaired; (2) Measurement - impairment loss = carrying amount - fair value. Costs to sell are deducted only for assets held for sale under ASC 360-10-35-43.
Common mistakes
Using undiscounted cash flows for measurement instead of fair value, or incorrectly deducting costs to sell for assets held and used
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