Problem
Assume that an asset is being examined and it is determined that its cash flows would be $10,000 per year for four years (assume that all cash flows are received at the end of the year). The carrying value of the asset is $35,000 and its replacement cost is $30,000. The firm's
cost of capital is 10 percent.
Required:
a. What would be the amount, if anv, that should be written offer because the asset is impaired under SF.AS No. 12I?
b. Why is your answer in part (a) anomalous and how does SF-AS . No. 121 justify it?
c. Would your answer to pan (a) be different if the cash flows were 58,000 rather _than $10,000? Explain.
d. Is there anything unusual about your answer .to part (c) since accounting rules arc frequently concerned with conservatism?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.