Questions:
The Manufacturing equipment of a company was valued at $1,000,000 at the beginning of the year on January 1st 2023 when its accumulated depreciation was $450,000. During 2023, an additional depreciation of $50,000 was recorded. 

According to the cash flow projects, it is expected that the asset will generate cash flows of $80,000 (2024), $86,000 (2025), $90,000 (2026), $60,000 (2027) and $70,000 (2028). The company's discount rate is 2.5% and it has been found that the fair value of the asset in the market is $386,000, with a selling cost of $2,550.

What is the impact of the impairment under IFRS?

What would the impairment be under US GAAP?

Reference answers:
The sum of the total undiscounted cash flows is $80,000.00 + $86,000.00 + $90,000.00 + $60,000.00 + $70,000.00 = $386,000.00. 

The present value of these cash flows is computed in the following table.

| Discounted Cash Flows |          |                |                          |
|---------------------------|----------|----------------|--------------------------|
| Year                  | Cash Flow | Discount Factor | Discounted Cash Flow |
| 2024                  | $80,000.00    | 0.9756             | $78,048.78              |
| 2025                  | $86,000.00    | 0.9518             | $81,856.04              |
| 2026                  | $90,000.00    | 0.9286             | $83,573.95              |
| 2027                  | $60,000.00    | 0.9060             | $54,357.04              |
| 2028                  | $70,000.00    | 0.8839             | $61,869.80              |
|      Total Discounted Cash Flows                     |  |   |$359,705.60|

We can now summarize the main values we need for the remainder of the question.

| Value at Year Beginning (1 January 2023)               | $1,000,000.00        |
| Accumulated Depreciation (1 January 2023)               | $450,000.00          |
| Depreciation During the Year (2023)                     | $50,000.00           |
| Value at Year End (30 December 2023)                    | $500,000.00          |
| Value in Use (Discounted Cash Flows)                    | $359,705.60          |
| Undiscounted Expected Cash Flows                        | $386,000.00          |
| Fair Value                                              | $368,000.00          |
| Costs to Sell the Asset in the Market                   | $2,550.00            |

# IFRS

Under IFRS, the impairment amount is the difference between the carrying amount and the recoverable amount. 

Impairment = Carrying Amount - Recoverable Amount
Recoverable Amount = Higher of Fair Value Less Costs to Sell and Value in Use $365,450.00

Carrying Amount = $500,000 (Value at Year End)
Fair Value less costs to sell = $368,000.00 - $2,550.00 = $365,450
Value in Use = $359,705.60
Recoverable Amount = max($365,450, $359,705.60) = $365,450

Therefore, the Impairment under IFRS is $500,000 - $365,450 = $134,550.

Under US GAAP, the impairment is valid only if the assets are recoverable, meaning that the undiscounted cash flows exceed the carrying value. In this case,

Undiscounted Future Cash Flows = $386,000.00
Carrying Amount = $500,000

The impairment is then the carrying amount less the sum of discounted cash flows, or

Carrying Amount - Sum of Discounted Cash Flows = $500,000.00 - $359,705.60 = $140,294.40

Therefore, the Impairment under US GAAP is $500,000 - $365,450 = $140,294.40