Question: Gardner Incorporated manufacturers products in two plants One of the

Gardner Incorporated manufacturers products in two plants. One of the plants is an area where there has been a downturn in the market, and indications are that there has been potential impairment. Gardner has determined that the asset group includes land, building, equipment, and a mortgage. Management anticipates using the plant for the next 10 years. he net book value of the assets in the asset group are as follows:
Land $ 60,000 Building 550,000 Equipment 210,000 Mortgage (225,000)
Annual cash flows from continuing to operate the plant over the next 10 years are $ 50,000 a year. The plant would be demolished at the end of 10 years. The estimated residual value of the land and equipment is $ 80,000. The appropriate discount rate for Gardner is 5%. Gardner has considered selling the assets and using the cash to help open a new facility. The market value of the assets was estimated by appraisers to be $ 700,000 less a commission of 10%. The buyer would assume the mortgage.

Is the asset group impaired? If so, what is the amount of the impairment loss?

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  • CreatedFebruary 17, 2015
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