Plastix Inc. bought a molding machine for $555,000 on June 1, 2016. The company expected to use this machine to extrude plastic toys for the next eight (8) years, when the machine would be sold for $45,000. On June 1, 2018, their major customer, Wal-Mart, gave notification that they were terminating Plastix as a supplier. Plastix’s accountants estimate that the machine will generate $390,000 in future cash inflows from other customers and the fair value of the machine is $345,000. Plastix uses straight-line depreciation.

a. Is this asset impaired on June 1, 2018? Show your calculation.

b. If the equipment is impaired, what is the impairment loss on June 1, 2018?

Answer rating: 100% (QA)

Impairement of asset is calculated or recorded whenever the carrying cost of the asset becomes great... View the full answer