Reid Resch Is a Maker of Instruments for Measuring Weight

question 25

Essay

Reid Resch is a maker of instruments for measuring weight, temperature, pressure, and so on. Due to the increasing use of digital instruments, one of the company production lines based on analogue technology is potentially impaired. Management has produced the following information relating to this production line, which is considered to be a cash generating unit:
$$\begin{array} { | l | r | } \hline \text { Original cost } & \$ 4,940,000 \\\hline \text { Accumulated depreciation } & 1,800,000 \\\hline \text { Fair value } & 3,270,000 \\\hline \text { Costs to sell } & 48,000 \\\hline \text { Risk adjusted cost of capital } & 5 \% \\\hline & \\\hline \text { Incremental cash flows for } & \$ 200,000 \\\hline 2020 & 1,200,000 \\\hline 2021 & 1,200,000 \\\hline 2022 & 1,000,000 \\\hline 2023 & 0 \\\hline 2024 \text { and thereafter } & 5 \\\hline\end{array}$$ Required:
Determine whether the production line is impaired, and if so, the amount of the impairment.

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Definitions:

Gainsharing

A performance-based compensation system where the savings from increased productivity are distributed among employees and the company.

Executive Dining Rooms

Exclusive dining areas within a company or organization that are reserved for senior management or executives, often seen as a symbol of status or privilege.

Job Status

The relative importance or prestige assigned to a job or position within an organization, which can affect motivation and job satisfaction.

Competency Approach

A methodology that prioritizes the skills, knowledge, and behaviors necessary for effective performance in a job role.