Chapter 3
Long-Term Assets
112
AP-22A (
3
4
)
ReHear Company is in the business of producing and selling hearing aid technology. As a result
of recent advances in this type of technology, the company decided to test its factory equipment
for impairment. Four years ago, the equipment was purchased for $520,000 with an estimated
residual value of $40,000. The equipment is expected to have a useful life of 15 years and four
years of depreciation have been recorded up to the impairment test. The company uses straight-
line depreciation.
Required
a) What is the net book value of the equipment at the end of this year?
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b) Was it required for ReHear to implement an impairment test for its equipment?Why?
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c) Assume ReHear company finds out that the equipment's recoverable amount is $390,000. Is
the equipment impaired? If yes, howmuch is the impairment loss?
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