The storm also caused damage to some of the machinery in the factory, lowering its operating capacity. Ravioli considered the need to perform an impairment assessment and determined the following as of 31 December 2021: 

• Carrying amount of machine, £500,000 

• An equivalent replacement machines would cost £620,000 

• If sold in its current condition, an agent believes the existing machine would sell for £450,000. The agent’s sales commission would be £10,000. 

• In its current condition, the machine could operate for 2 more years, generating cashflows of £250,000 per year. Ravioli’s cost of borrowing is 10%. 

Calculate the amount of the impairment write-down necessary (if any) as of 31 December 2021.

Answer rating: 100% (QA)

STEP 1 When the fair market value of an asset falls below i... View the full answer