Detailed Answer
(a) The requirement is to determine the amount of
impairment loss. The impairment loss recognized is the difference
between the asset’s fair value and its carrying value. On
December 31, year 4, the carrying value of the equipment is
$80,000 after recording depreciation expense for the current
year. ($100,000/Y4 years = $10,000 per year × 2 years = $20,000
accumulated depreciation). The fair value is determined by using
the principal or most advantageous market assuming the
highest and best use of the asset. Since the in-use valuation
premise is $74,000, the asset is assumed to be in its highest and
best use using an in-use valuation premise. Therefore, the impairment
loss recognized in year 4 would be the carrying value of
$80,000 less the fair value of $74,000 = $6,000.