Mocktest on Impairement loss
Impairment Loss
1.Under US GAAP, a long-lived asset held and used is generally tested for impairment when:
A. Its fair value increases
B. Events or changes in circumstances indicate that its carrying amount may not be recoverable
C. Its depreciation expense decreases
D. Management changes the useful life every year
Answer:
2.For a long-lived asset held and used, the first step in the US GAAP impairment test compares the carrying amount with:
A. Fair value
B. Present value of future cash flows
C. Sum of undiscounted future cash flows
D. Replacement cost
Answer:
3.An asset has a carrying amount of $500,000 and expected undiscounted future cash flows of $550,000. The asset is:
A. Impaired by $50,000
B. Impaired by $500,000
C. Not impaired
D. Written down to fair value
Answer:
4.A machine has a carrying amount of $800,000. Its expected undiscounted future cash flows are $700,000 and its fair value is $620,000. The impairment loss is:
A. $80,000
B. $100,000
C. $180,000
D. $620,000
Answer:
5.Which amount is used to measure the impairment loss after a long-lived asset fails the recoverability test?
A. Book value
B. Undiscounted cash flows
C. Fair value
D. Replacement cost
Answer:
6.A long-lived asset has:
- Carrying amount = $900,000 Undiscounted cash flows = $850,000
- Fair value = $780,000 The impairment loss is:
A. $50,000B. $70,000C. $120,000D. $850,000
Answer:
8.Which of the following is an indicator of possible impairment?
A. Significant decline in the asset's market value
B. Increase in sales
C. Reduction in operating costs
D. Increase in customer demand
Answer:
9.A company owns equipment with a carrying amount of $300,000. Expected undiscounted cash flows are $300,000. Fair value is $250,000. The impairment loss is:
A. $50,000
B. $0
C. $250,000
D. $300,000
Answer:
Explanation: The asset passes the recoverability test because carrying amount is not greater than undiscounted cash flows.
10.Under US GAAP, impairment loss for a long-lived asset held and used is generally:
A. Carrying amount − fair valueB. Fair value − carrying amount
C. Carrying amount − undiscounted cash flowsD. Fair value − undiscounted cash flows
Answer:
11.Which cash flows are used in the recoverability test?
A. Discounted future cash flows
B. Undiscounted future cash flows
C. Historical cash flows
D. Budgeted accounting income
Answer:
12.A company estimates the following for an asset:
Carrying amount = $1,200,000
Undiscounted cash flows = $1,000,000
Fair value = $900,000
What amount should be recognized as impairment loss?
A. $100,000
B. $200,000
C. $300,000
D. $900,000
Answer:
13.Once a long-lived asset held and used is impaired under US GAAP, its new carrying amount is generally:
A. Fair value
B. Undiscounted cash flows
C. Original cost
D. Replacement cost
Answer:
14.Which statement regarding impairment loss under US GAAP is correct?
A. It is normally reversible for assets held and used
B. It is normally not reversed for assets held and used
C. It must be reversed when fair value increases
D. It is reversed through OCI
Answer:
15.A machine's carrying amount is $600,000. Its undiscounted future cash flows are $500,000 and fair value is $450,000. After impairment, the machine should be reported at:
A. $600,000
B. $500,000
C. $450,000
D. $100,000
Answer:
16.A company discovers that technological changes have made its production equipment obsolete. This is primarily:
A. An impairment indicator
B. A depreciation method
C. A revenue recognition event
D. A capital contribution
Answer:
17.Which of the following is NOT normally used to measure the impairment loss after recoverability fails?
A. Fair value
B. Carrying amount
C. Difference between carrying amount and fair value
D. Undiscounted future cash flows as the final measurement
Answer:
18.An asset has a carrying value of $400,000 and undiscounted cash flows of $350,000. Fair value is $375,000. What is the impairment loss?
A. $25,000
B. $50,000
C. $75,000
D. $0
Answer:
19.Which event would most likely trigger an impairment review?
A. Significant adverse change in the manner in which an asset is used
B. Increase in production volume
C. Increase in selling price
D. Decrease in accounts payable
Answer:
20.A company records an impairment loss of $90,000. The immediate effect is generally:
A. Increase in asset carrying amount
B. Decrease in asset carrying amount
C. Increase in retained earnings
D. Increase in revenue
Answer:
Goodwill Impairment
21.Under current US GAAP, goodwill impairment is generally tested at the:
A. Individual asset level
B. Reporting-unit level
C. Consolidated company level only
D. Product level
Answer:
22.For goodwill impairment, if the carrying amount of a reporting unit exceeds its fair value:
A. No impairment exists
B. An impairment loss may be recognized
C. Goodwill is automatically increased
D. The entire reporting unit is written off
Answer:
23.A reporting unit has:
Carrying amount = $10 million
Fair value = $8 million
Goodwill = $1.5 million
The maximum goodwill impairment loss is:
A. $500,000
B. $1 million
C. $1.5 million
D. $2 million
Answer:
Explanation: Loss = $10M − $8M = $2M, but the goodwill impairment loss is limited to the goodwill allocated to the reporting unit, $1.5M
24.A reporting unit has a carrying amount of $5 million and fair value of $6 million. Goodwill is $1 million. The goodwill impairment is:
A. $1 millionB. $500,000C. $0D. $6 million
Answer:
25.A reporting unit has:
- Carrying amount = $15 million Fair value = $12 million
- Goodwill = $2 million The goodwill impairment loss is:
A. $1 millionB. $2 million. $3 millionD. $0
Answer:
26.If a reporting unit's fair value is greater than its carrying amount, goodwill is:
A. Impaired
B. Not impaired
C. Automatically amortized
D. Written off
Answer:
27.Under US GAAP, goodwill impairment loss is limited to:
A. Fair value of the reporting unit
B. Carrying amount of the reporting unit
C. Goodwill allocated to the reporting unit
D. Total assets of the company
Answer:
28.A reporting unit has a carrying amount of $20 million, fair value of $17 million, and goodwill of $5 million. The impairment loss related to goodwill is:
A. $1 million
B. $2 million
C. $3 million
D. $5 million
Answer:
29.If the calculated reporting-unit impairment exceeds the goodwill balance, under US GAAP:
A. Other assets are automatically reduced below fair value
B. The goodwill loss is limited to the goodwill balance
C. The entire reporting unit is written off
D. The excess is recorded as a liability
Answer:
30.Which statement best distinguishes goodwill impairment from long-lived asset impairment?
A. Goodwill is tested at the reporting-unit level
B. Goodwill uses undiscounted cash flows as the recoverability test
C. Goodwill impairment is always reversible
D. Goodwill is depreciated
Answer:
Indefinite-Lived Intangible Assets
31.An indefinite-lived intangible asset under US GAAP is generally tested for impairment:
A. Only when sold
B. Annually and when triggering events occur
C. Every five years
D. Only when amortized
Answer:
32.For an indefinite-lived intangible asset, the quantitative impairment test compares:
A. Carrying amount with undiscounted cash flows
B. Carrying amount with fair value
C. Fair value with historical cost
D. Net income with cash flow
Answer:
33.An indefinite-lived trademark has:
Carrying amount = $2 million
Fair value = $1.6 million
The impairment loss is:
A. $400,000
B. $600,000
C. $1.6 million
D. $0
Answer:
34.An indefinite-lived intangible asset has a carrying amount of $900,000 and fair value of $950,000. The impairment loss is:
A. $50,000
B. $900,000
C. $0
D. $950,000
Answer:
35.Under US GAAP, an entity may first perform which assessment for an indefinite-lived intangible asset?
A. Inventory valuation
B. Qualitative assessment
C. Cash-flow statement analysis
D. Depreciation test
Answer:
36.The qualitative assessment for an indefinite-lived intangible asks whether it is:
A. More likely than not that the asset is impaired
B. Certain that the asset is impaired
C. Less likely than not that the asset is profitable
D. More profitable than expected
Answer:
37.If a qualitative assessment indicates that an indefinite-lived intangible asset is more likely than not impaired, the company should:
A. Ignore the impairment
B. Perform a quantitative impairment test
C. Automatically write it off completely
D. Reverse previous depreciation
Answer:
38.Which asset is generally not amortized because it has an indefinite useful life?
A. Five-year patent
B. Ten-year license
C. Indefinite-lived trademark
D. Office building
Answer:
39.An indefinite-lived trademark has a carrying value of $1.2 million and fair value of $900,000. The impairment loss is:
A. $100,000B. $200,000C. $300,000D. $900,000
Answer:
40.Which statement is TRUE regarding indefinite-lived intangible assets under US GAAP?
A. They are tested using undiscounted cash flows
B. They are tested by comparing carrying amount with fair value
C. They are always amortized
D. Their impairment loss is always reversible
Answer:
Tricky & Calculation-Based Questions
41.A machine has:
- Carrying amount = $1,000,000
- Undiscounted future cash flows = $950,000
- Fair value = $850,000
What is the impairment loss?
A. $50,000B. $100,000C. $150,000D. $850,000
Answer:
42.A machine has a carrying amount of $1,000,000 and undiscounted future cash flows of $1,100,000. Fair value is $800,000. What impairment loss should be recognized?
A. $200,000B. $100,000C. $0D. $300,000
Answer:
Exam trap: Even though fair value is below carrying amount, the asset passes the recoverability test.
43.An asset has a carrying amount of $750,000, undiscounted cash flows of $700,000, and fair value of $680,000. The loss is:
A. $50,000B. $70,000C. $20,000D. $0
Answer:
44.A reporting unit has carrying amount of $9 million and fair value of $7 million. Goodwill is $1.2 million. What goodwill impairment should be recognized?
A. $800,000B. $1.2 millionC. $2 millionD. $0
Answer:
45.Which statement is FALSE regarding US GAAP impairment of long-lived assets held and used?
A. Undiscounted cash flows are used in the recoverability test
B. Fair value is used to measure the loss
C. Impairment losses are generally reversed when fair value increases
D. Triggering events can require an impairment test
Answer:
46.A company's equipment has a carrying amount of $2 million. Due to a technological change, expected undiscounted cash flows are $1.7 million. Fair value is $1.4 million. The company should recognize:
A. $300,000 impairmentB. $600,000 impairment
C. $1.4 million impairmentD. No impairment
Answer:
47.Which of the following is the BEST sequence for testing a long-lived asset held and used under US GAAP?
A. Fair value → impairment → undiscounted cash flows
B. Undiscounted cash flows → recoverability → fair value measurement
C. Fair value → discounted cash flows → book value
D. Historical cost → replacement cost → fair valu
Answer:
48.A company recognizes an impairment loss on equipment. In a subsequent year, the equipment's fair value increases substantially. Under normal US GAAP rules for assets held and used, the company should:
A. Reverse the impairment lossB. Record the increase as a gain
C. Continue using the reduced carrying amountD. Restore the asset to original cost
Answer:
49.A reporting unit has:
- Carrying amount = $25 million Fair value = $21 million
- Goodwill = $3 million What is the maximum goodwill impairment loss?
A. $1 millionB. $3 millionC. $4 millionD. $25 million
Answer:
50.Case-Based Question:
ABC Inc. owns a manufacturing facility with a carrying amount of $6 million. Due to a major decline in demand, management expects undiscounted future cash flows of $5.2 million. The facility's fair value is estimated at $4.5 million. Management concludes that the decline is not temporary.
What is the impairment loss?
A. $800,000B. $1 millionC. $1.5 millionD. $5.2 million
Answer:
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