Q: What mistakes do candidates make on this CPA question?

Using undiscounted cash flows for measurement instead of fair value, or incorrectly deducting costs to sell for assets held and used

Question 1

Apex Corp. owns a manufacturing facility with the following data at year-end:
- Net carrying amount (book value): $2,400,000
- Undiscounted future cash flows expected from use and disposal: $2,100,000
- Fair value of the asset: $1,800,000
- Costs to sell: $50,000

What amount of impairment loss, if any, should Apex Corp. recognize under ASC 360?

Accepted Answer

First perform the recoverability test: compare undiscounted future cash flows to carrying amount. If cash flows < carrying amount, the asset is impaired. Then measure impairment as carrying amount minus fair value (for held and used assets, do not deduct costs to sell).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using undiscounted cash flows for measurement instead of fair value, or incorrectly deducting costs to sell for assets held and used

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 2

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