Question
On January 1, 2009, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory. It is depreciating the machinery over 12 years
On January 1, 2009, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight-line method to a residual value of $50,000.
Late in 2013, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of 5 years, over which it estimates the asset will produce total cash inflows of $1,000,000 and will incur total cash outflows of $825,000.
The cash flows are independent of the company's other activities and will occur evenly each year. Vallahara is not able to determine the fair value based on a current selling price of the machinery. Vallahara's discount rate is 10%.
Required:
1. Prepare a schedule to determine whether, at the end of 2013, the machinery is impaired and, if so, the impairment loss to be recognized. If required, round your answers to the nearest dollar. Click here to access the PV table to use with this problem.
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