Walsh Inc. is a privately held company with an August 31st fiscal year end. Walsh’s operations include operating a local brewery. Walsh believes that an impairment loss on some of the older water tanks it owns needs to be recorded as a significant adverse change in the extent or manner in which [the water tank] is being used has occurred. The historical cost of the water tanks is $4,000,000 and as of the end of the fiscal year (August 31, 2021) $2,500,000 in depreciation on the water tanks has been recorded. Furthermore, as this date, Walsh estimates that the expected future cash flows (undiscounted) from the use and eventual disposition of the water tanks is $1,250,000. The fair value of the water tanks is estimated to be $975,000 at that time. Accounting Issue: Is there an impairment loss that Walsh needs to recognize on the water tanks? If so, what is the correct amount of the impairment loss on the water tanks as of August 31st, 2021?
Walsh Inc. is a privately held company with an August 31st fiscal year end. Walsh’s operations include operating a local brewery. Walsh believes that an impairment loss on some of the older water tanks it owns needs to be recorded as a significant adverse change in the extent or manner in which [the water tank] is being used has occurred. The historical cost of the water tanks is $4,000,000 and as of the end of the fiscal year (August 31, 2021) $2,500,000 in
Accounting Issue: Is there an impairment loss that Walsh needs to recognize on the water tanks? If so, what is the correct amount of the impairment loss on the water tanks as of August 31st, 2021?
Impairment loss = Carrying value of the assets - Recoverable value of the assets
where,
The recoverable value of the assets is lower of the "Fair value of the asset" and "undiscounted estimated future cash flows"
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