Question
AgroTech acquired an agricultural research center on 1 January 20X1 for $3,500,000 with an estimated residual value of $350,000 and an estimated useful life of
AgroTech acquired an agricultural research center on 1 January 20X1 for $3,500,000 with an estimated residual value of $350,000 and an estimated useful life of 15 years. The company applies the straight-line depreciation method. Due to changes in agricultural research funding, the company now forecasts the following net cash inflows: $600,000 on 31 December 20X4, $550,000 on 31 December 20X5, and $500,000 on 31 December 20X6. The present values of $1 at the end of each year, using a discount rate of 6%, are: 0.94 for year 1, 0.89 for year 2, and 0.84 for year 3. Required: Assess the recoverable amount and calculate the impairment loss. Update the cash flow statement to reflect these changes as of 31 December 20X4.
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