Equipment cost is $800,000. Accumulated depreciation is $200,000. Expected future cash flows from the equipment is now $580,000. The fair value of the equipment (discounted cash flows) is $525,000. Which is correct? Group of answer choices
Impairment loss of $20,000
Impairment loss of $75,000
No impairment
Not enough information is provided
Based on the information provided, the fair value of the equipment ($525,000) is lower than its carrying value ($800,000 - $200,000 = $600,000). Therefore, an impairment loss is necessary.
The impairment loss can be calculated by subtracting the fair value of the equipment ($525,000) from its carrying value ($600,000).
Impairment loss = Carrying Value - Fair Value
Impairment loss = $600,000 - $525,000
Impairment loss = $75,000
Therefore, the correct answer is "Impairment loss of $75,000".
Based on the given information, the correct answer is:
Impairment loss of $75,000
To determine if there is an impairment loss, we compare the fair value of the equipment to its carrying value. The carrying value is the cost of the equipment minus the accumulated depreciation.
Carrying value = Equipment cost - Accumulated depreciation
Carrying value = $800,000 - $200,000 = $600,000
If the fair value is less than the carrying value, an impairment loss is recognized. In this case, the fair value is $525,000, which is less than the carrying value of $600,000. The impairment loss is calculated by subtracting the fair value from the carrying value.
Impairment loss = Carrying value - Fair value
Impairment loss = $600,000 - $525,000 = $75,000
Therefore, the correct answer is an impairment loss of $75,000.