A company is testing a long-lived asset for impairment. - Carrying Amount: $500,000 - Undiscounted Future Cash Flows: $480,000 - Fair Value: $450,000 What amount of impairment loss should be recognized?

Answer options:

$20,000

$50,000

$30,000

How to approach this question

Two-step test for finite-lived assets: 1. Recoverability: Is Carrying Amount > Undiscounted Cash Flows? If yes, proceed. 2. Measurement: Carrying Amount - Fair Value.

Full Answer

C.$50,000✓ Correct

Step 1 (Recoverability Test): Compare Carrying Amount ($500,000) to Undiscounted Future Cash Flows ($480,000). Since Carrying Amount > Cash Flows, the asset is impaired. Step 2 (Measurement): Impairment Loss = Carrying Amount - Fair Value = $500,000 - $450,000 = $50,000.

Common mistakes

Writing down to Undiscounted Cash Flows ($20k loss). Skipping the recoverability test (though here it fails anyway).

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A company is testing a long-lived asset for impairment. <br/>- Carrying Amount: $500,000<br/>- Undiscounted Future Cash Flows: $480,000<br/>- Fair Value: $450,000<br/><br/>What amount of impairment loss should be recognized?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 3

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