Question

Torque Co. has equipment with a carrying amount of $1,600,000. The expected future net cash flows from the equipment are $1,630,000, and its fair value is $1,360,000. The equipment is expected to be used in operations in the future. What amount (if any) should Torque report as an impairment to its equipment?
1. No impairment should be reported.
2. $240,000
3. $30,000
4. $270,000

Answer 1

Answer:

2. $240,000

Explanation:

Impairment loss is calculated as the difference between the book value (carrying amount) of an equipment and its fair market value, usually due to depreciation. Expected cash flows from the equipment are not considered when calculating impairment. Torque Co. should report an impairment of:

$I= \ 1,600,000 - 1,360,000 = \ 240,000$

They should report an impairment of $240,000.