Question

Assume Deere management is considering an impairment charge on some manufacturing assets. Assume the assets under consideration for impairment originally cost $300 million and have accumulated depreciation in the amount of $125 million. Assume Deere management has estimated the fair-value of the assets under consideration to be $75 million and the remaining future cash flows to be $110 million. If Deere management decides to book (i.e., record) an asset impairment charge, determine the dollar amount of the charge. Also, what will the balance sheet value (i.e., book value) of the assets be immediately after the charge?

Answer 1

According to US GAAP
We will first calculate the carrying value of the asset which is 300 million - 125 million depreciation = $175 million carrying value of the asset.

Now after finding the carrying value we will compare it with future cash flows , as future cash flow are lower than carrying value , the asset is impaired

We will now recognize impairment loss of Carrying Value - Fair Value of Asset i.e $175 Million - $75 Million = $100 Million
So the dollar Value of Impairment loss is $100 Million , which will be recognized in Income Statement.

The Book Value of The Asset after Impairment will be its Fair Value i.e. $75 Million.