Question

A company has an equity investment with a historical cost of $500,000 that is traded in an active market. At December 31, year 1, the quoted price for an identical investment was $400,000 and the quoted price for a similar investment was $430,000. Using the company's internal present value of cash flows model, the company arrived at a value of $410,000. What amount is the value of the investment on December 31, year 1?

Answer 1

Answer:

$410,000

Explanation:

IAS 38 states that the value to be used in case of an impairment is the Recoverable amount: the higher of an asset's fair value less costs of disposal* (sometimes called net selling price) and its value in use'

The amount that will be used as the value of the investment on December 31 will be the higher of:  the identical investment and that of the company's internal present value of cash flows (which is 'value in use')

Since $410,000. we use that value as stipulated by the standard