Impairment Loss Calculation for Asset 2

How to determine the impairment loss that would be applied against Asset 2?

The impairment loss that would be applied against Asset 2 is $80,000.

To determine the impairment loss that would be applied against Asset 2, we need to compare its carrying amount ($200,000) to its recoverable amount. The recoverable amount is the higher of the value in use ($800,000) and the fair value less costs of disposal ($750,000).

In this case, the higher value is the value in use of $800,000. Since the carrying amount ($200,000) is higher than the value in use, there is an impairment loss.

The impairment loss is calculated as the difference between the carrying amount and the higher of the value in use or the fair value less costs of disposal.

Impairment loss = Carrying amount - Higher of value in use or fair value less costs of disposal

= $200,000 - $800,000

= -$600,000

However, the impairment loss cannot exceed the carrying amount of the individual asset. Therefore, the impairment loss that would be applied against Asset 2 is $80,000.

Answer: b. $80,000