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Question - Does impairment exist

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Question - Spurs Corporation is a manufacturer of automobile parts. Its capital assets include specialized equipment that is being used in the finishing stage of its manufacturing process.

The equipment was purchased in 2017 and is being depreciated using the units of production method. By December 31, 2018, the net book (carrying) value was $430,000 (after depreciation expense had been recorded). However, at that time, Spurs became aware of new technology that would make the equipment obsolete within the next five (5) years. An appraisal puts the equipment's future undiscounted net cash flows at $390,000 and its fair value at $300,000. While considering its options for the eventual replacement, Spurs will continue using the equipment, but will change to straight-line depreciation.

Instructions - Assuming Spurs is a private Canadian corporation, Does impairment exist? Justify your answer.

Reference no: EM132614748

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