Zoe Incorporated has a large piece of machinery where management has assessed and determined there is potential impairment. This piece of machinery has independent cash inflows. The following information relates to the machine:
• Carrying amount $ 4 million.
• He machine could be sold for $ 3 million less a 10% commission.
• IF the company was forced to sell immediately, the proceeds would likely be $ 2.5 million.
• If the machine continues to be used in production, it is anticipated to generate $ 1.5 mil-lion of cash lows for the next five years. It would require annual maintenance costs of $ 100,000 a year. The equipment could be sold for $ 50,000 at the end of the five years.
• Assume Zoe has a discount rate of 6%.

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

  • CreatedFebruary 17, 2015
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