The Middleville School district has discovered mold in one of its schools. The school was constructed 10 years ago at a cost of $30 million. It had an expected useful life of 50 years and hence was 20 percent depreciated.
The cost to replace the school today would be $40 million. The district estimates that the cost of eliminating the mold and making the associated repairs would be $4,000,000. The entire amount would be covered by insurance.
1. How much of an impairment loss, without taking into account the insurance recovery, should the district recognize?
2. What would be the new carrying value of the school after adjusting for the impairment?
3. How much of a net gain should the district recognize taking into account the insurance recovery?