Question

Vegetarian Delights has been experiencing declining market conditions for its specialty foods division. Management decided to test the operational assets of the division for possible impairment. The test revealed the following: book value of the division's assets, $33.5 million; fair value of the division's assets, $30 million; the sum of estimated future cash flows generated from the division's assets, $38 million.
Required:
What amount of impairment loss should Vegetarian Delights record?

Answer 1

The amount of impairment loss should Vegetarian Delights record is $3.5 million.

Calculation of impairment loss:

Book value of the division assets = $33.50 million

Fair value of the division assets = $30 million

The sum of estimated future cash flows generated = $38 million

So, by considering the above information, the amount of impairment loss is

= Book value of the division assets - fair value of the division asset

= $33.5 million - $30 million

= $3.5 million

Since the fair value is less than the book value so the difference should be recorded as an impairment loss

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