Q: A company tests a long-lived asset for impairment. Carrying Amount: $500,000 Undiscounted Future Cash Flows: $480,000 Fair Value: $450,000 Costs to Sell: $20,000 What is the impairment loss to be recognized?

Step 1 (Recoverability): Are Undiscounted CF Step 2 (Measurement): Loss = Carrying Amount - Fair Value. (Do not deduct costs to sell for assets held for use).

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

Stopping at Step 1; using Undiscounted CF for measurement; deducting costs to sell.

Question 1

A company tests a long-lived asset for impairment.
Carrying Amount: $500,000
Undiscounted Future Cash Flows: $480,000
Fair Value: $450,000
Costs to Sell: $20,000

What is the impairment loss to be recognized?

Accepted Answer

Step 1 (Recoverability): Are Undiscounted CF < Carrying Amount? Yes ($480k < $500k). Proceed to Step 2.
Step 2 (Measurement): Loss = Carrying Amount - Fair Value. (Do not deduct costs to sell for assets held for use).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Stopping at Step 1; using Undiscounted CF for measurement; deducting costs to sell.

A company tests a long-lived asset for impairment. <br/>Carrying Amount: $500,000<br/>Undiscounted Future Cash Flows: $480,000<br/>Fair Value: $450,000<br/>Costs to Sell: $20,000<br/><br/>What is the impairment loss to be recognized?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 4

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