I simply can't see why they only used two years of depreciation instead of three in determining impairment. Here's the question
Linx Corporation acquired equipment on January 1, 2008 for $100,000. The equipment had a ten-year useful life and no salvage value. On December 31, 2010, the following information was obtained regarding the equipment :
Expected value of undiscounted cash flows: $72,000
Fair Value estimated with in-use valuation premise $74,000
Fair value estimated with in-exchange valuation premise $70,000
What is the amount of impairment loss that Linx should report in its 2010 income statement?
a. $ 6,000
b. $ 8,000
c. $10,000
d. $0
Wiley's Answer: a. They calculated carrying value as $80,000, using only 2 years of depreciation. So that would leaving an impairment loss of 6,000
My answer: d. I used 3 years of depreciation since the asset was acquire in Jan 1,2008. Using the information from 12/31/2010, i assumed 2010 depreciation was recorded, so the carrying value i calculated was $70,000. Since the inuse valuation is greater than the carrying value, I felt no impairment loss is recorded.
What is it that i'm not reading correctly? i can't see where i'm wrong
