Detailed Answer
(b) The requirement is to determine the amount that
should be presented for the equipment. An impairment loss is
recognized if the carrying value of the asset exceeds the sum of
the undiscounted cash flows. Since the carrying value of $160,00
exceeds the sum of the estimated undiscounted cash flows of
$135,000, an impairment loss must be measured. The impairment
loss is measured by comparing the fair value of the asset to
the carrying value. The fair value of the asset is determined by
using the lowest level input available. In this situation, a Level 1
input is not available. The value of similar equipment for sale in
the market is a Level 2 input because it is a directly or indirectly
observable input. The present value of future cash flows is a
Level 3 input, and should only be used when Level 1 or Level 2
inputs are not available. Therefore, the asset should be presented
at its fair value of $140,000, which uses a Level 2 input to appropriately
measure fair value of the equipment.