Problem
The service units approach is most appropriate for impairments caused by technological obsolescence Clarkstown State University acquired specialized laboratory equipment with the expectation that it would be used to perform approximately 3,000 tests per year over a 10-year period. The cost was $600,000. After the equipment had been used for only three years and was 30 percent depreciated, the university realized that the machine would likely be used to perform only 500 tests per year over the following seven years owing to the introduction of more efficient equipment.
1. What should be the new carrying value of the equipment?
2. How much of an impairment loss should the university recognize?