From the course: Accounting Foundations: Asset Impairment
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Practice with tangible asset impairment computations
From the course: Accounting Foundations: Asset Impairment
Practice with tangible asset impairment computations
- According to the U.S. accounting rules, determining whether an impairment loss exists and then calculating the amount of the loss involves a two-step process. First, to determine the existence of the impairment loss, the recorded book value of the asset is compared with the sum of the future cash flows to be generated by the asset. Second, the amount of any impairment loss is the difference between the book value of the asset and its market value. Let's do an illustration. Assume that Ryan Marie Real Estate owns and rents out commercial real estate buildings. Five years ago, Ryan Marie purchased a building for $600,000. The building has been depreciated using the straight-line method with a 20-year useful life and no salvage value. Annual depreciation for the building has been $30,000, which is $600,000 divided by 20 years. Remember that book value is cost minus accumulated depreciation. The current book value of…
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