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Chapter 11: Q11-3IFRS (page 606)

Toro Co. has equipment with a carrying amount of \(700,000. The value-in-use of the equipment is \)705,000, and its fair value less costs of disposal is $590,000. The equipment is expected to be used in operations in the future. What amount (if any) should Toro report as an impairment to its equipment?

Short Answer

Expert verified

Answer

No measurement of loss is made or recognized even though the fair value is only $590,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Impairment

Impairment refers to a reduction of the market value of fixed or intangible assets, indicative of a reduction in the quantity, quality, or market value of an asset. The idea is that an asset should never be reported in a business's financial statements above the maximum amount that could be recouped through its sale.

02

Explaining the amount that should be reported by Toro

If the carrying amount of the asset exceeds the recoverable amount of the asset after performing the impairment test, the asset is said to be impaired. Because the value-in-use of $705,000 exceeds the carrying amount of the equipment ($700,000), no impairment is anticipated; therefore, even if the fair value is only $590,000, no loss assessment or recognition is performed.

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Most popular questions from this chapter

(Depreciation Computations鈥擣our Methods) Robert Parish Corporation purchased a new machine for its assembly process on August 1, 2017. The cost of this machine was \(117,900. The company estimated that the machine would have a salvage value of \)12,900 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 21,000 hours. Year-end is December 31.

Instructions

Compute the depreciation expense under the following methods. Each of the following should be considered unrelated.

  1. Straight-line depreciation for 2017.
  2. Activity method for 2017, assuming that machine usage was 800 hours.
  3. Sum-of-the-years鈥�-digits for 2018.
  4. Double-declining balance for 2018.

(Depletion Computations鈥擬ining) Alcide Mining Company purchased land on February 1, 2017, at a cost of \(1,190,000. It is estimated that a total of 60,000 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at \)90,000. It believes it will be able to sell the property afterwards for \(100,000. It incurred developmental costs of \)200,000 before it was able to do any mining. In 2017, resources removed totaled 30,000 tons. The company sold 22,000 tons.

Instructions

Compute the following information for 2017.

  1. Per unit material cost.
  2. Total material cost of December 31, 2017, inventory.
  3. Total material cost in cost of goods sold at December 31, 2017.

Francis Corporation purchased an asset at a cost of \(50,000 on March 1, 2017. The asset has a useful life of 8 years and a salvage value of \)4,000. For tax purposes, the MACRS class life is 5 years. Compute tax depreciation for each year 2017鈥�2022.

(Depreciation Computations, SYD) Five Satins Company purchased a piece of equipment at the beginning of 2014. The equipment cost \(430,000. It has an estimated service life of 8 years and an expected salvage value of \)70,000. The sum of-the-years鈥�-digits method of depreciation is being used. Someone has already correctly prepared a depreciation schedule for this asset. This schedule shows that \(60,000 will be depreciated for a particular calendar year.

Instructions

Show calculations to determine for what particular year the depreciation amount for this asset will be \)60,000.

Toro Co. has equipment with a carrying amount of \(700,000. The expected future net cash flows from the equipment are \)705,000, and its fair value is $590,000. The equipment is expected to be used in operations in the future. What amount (if any) should Toro report as an impairment to its equipment?
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