Collison and ryder company (c& r) has been experiencing declining market conditions for its sportswear division. management decided to test the assets of the division for possible impairment. the test revealed the following: book value of division's assets, $53.0 million; fair value of division's assets, $42 million. (a) if the sum of estimated future cash flows generated from the division's assets, $56 million, what amount of impairment loss should c& r recognize? (b) if the sum of future cash flows generated is expected to be $48, what amount of impairment loss should be recognized?

a) Since Estimated future cash flows generated from the division is more than the book value of division's asset, the test of impairment has been failed and there is no impairment loss to be recognized, The Impairment Loss will be Zero.

b) The amount of impairment loss should be recognized is $11 million.

Explanation:

a) We generally recognize the impairment loss when estimated future cash flows from the division is less than its book value.

Estimated future cash flows generated from the division = $56 million

Book value of division's assets = $53.0 million  

Therefore, Since Estimated future cash flows generated from the division is more than the book value of division's asset, the test of impairment has been failed and there is no impairment loss to be recognized, The Impairment Loss will be Zero.

b)  We generally recognize the impairment loss when estimated future cash flows from the division is less than its book value.

Estimated future cash flows generated from the division = $48 million

Book value of division's assets = $53.0 million

Impairment loss

= Book value of division's assets - Fair value of Division's assets

= $53.0 million - $42 million

= $11 million

Therefore, The amount of impairment loss should be recognized is $11 million.

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