Answer to Question #216316 in Accounting for zuby

Question

3.

Assume that you determined that the plant’s future cash flows were below its book value. The company must now perform the fair value test. Several appraisers are called in, and the average fair value they give the plant is $15,600,000. Determine if Fairfield must record an impairment loss and, if so, make the journal entry to do so.

Answer 1

Solution:

Fairfield must record an impairment loss since the book value of the plant exceeds its fair value.

Book value of the plant as at December 31^st, 20X4 = 39,238,252.49

Fair value = 15,600,000

Impairment loss = Book value – fair value = 39,238,252.49 – 15,600,000 = 23,638,252.49

 

Journal entry for impairment loss is as follows:

Dr. Impairment loss A/c                                            23,638,252.49

                  Cr. Plant A/c                                                                                23,638,252.49

(To record impairment loss of the plant)