Assets A, B, and C comprise an asset group. Asset B is considered to be the principal asset in this group. Asset B has a three-year estimated life and A and C have remaining lives of four years. Data on the expected undiscounted cash flows of the three assets, their book values (carrying values), and their fair values less costs to dispose are shown below:
|
Undiscounted cash
flows by year
|
A
|
B
|
C
|
|
1
|
$18,000
|
$80,000
|
$12,000
|
|
2
|
15,000
|
70,000
|
10,000
|
|
3
|
12,000
|
65,000
|
9,000
|
|
4
|
10,000
|
|
6,000
|
|
Book value
|
$60,000
|
$220,000
|
$20,000
|
|
Fair value less Disposal costs
|
$65,000
|
$18,000
|
$25,000
|
Required:
a. Determine the amount of impairment according to SFAS Nos. 121 and 144.
b. By how much should each of the assets be written down?
c. What theoretical problems do you see with the application of SFAS Nos. 121 and 144 to asset impairments?