Midwest Services, Inc., operates several restaurant chains throughout the Midwest. One restaurant chain has experienced sharply declining profits. The companyâ€™s management has decided to test the operational assets of the restaurants for possible impairment. The relevant information for these assets is presented below.
Book value ............. $3.5 million
Estimated total future cash flows .... 3.0 million
Fair value .............. 1.5 million
1. Determine the amount of the impairment loss, if any.
2. Repeat Requirement 1 assuming that the estimated total future cash flows are $4.0 million and the fair value is $3 million.