CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
A machine under IFRS (cost model) has a carrying amount of 800,000. Its fair value less costs of disposal is 640,000 and its value in use is 700,000. The impairment loss recognized is closest to:
The loss is about 100,000. Recoverable amount is the higher of 640,000 and 700,000, so 700,000. Subtracting it from the 800,000 carrying amount gives 100,000. Using the lower fair value measure would overstate the loss at 160,000.
- A60,000
- B100,000Correct
- C160,000
Explanation
Recoverable amount is the higher of 640,000 and 700,000, which is 700,000. Loss = 800,000 − 700,000 = 100,000. Using fair value less costs of disposal gives 160,000, which wrongly takes the lower figure. 60,000 is the gap between the two measures, which is irrelevant.
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