Bean World Company Produces Two Distinct Product Lines: Dried Beans

question 118

Essay

Bean World Company produces two distinct product lines: dried beans and canned beans. Due to changing consumer tastes, the company is evaluating these two cash generating units for impairment for the year ending December 31, 2019. Relevant information is as follows:
$$\begin{array} { | l | r | r | } \hline & \text { Dried beans } & \text { Canned beans } \\\hline \text { Original cost } & \$ 7,222,000 & \$ 12,536,000 \\\hline \text { Accumulated depreciation } & 2,500,000 & 4,200,000 \\\hline \text { Fair value } & 5,062,000 & 8,916,000 \\\hline \text { Costs to sell } & 90,000 & 340,000 \\\hline \text { Risk adjusted cost of capital } & 5 \% & 5 \% \\\hline & & \\\hline \text { Incremental cash flows for } & & \\\hline 2020 & \$ 800,000 & \$ 2,400,000 \\\hline 2021 & 1,200,000 & 3,400,000 \\\hline 2022 & 1,300,000 & 3,700,000 \\\hline 2023 & 1,700,000 & 0 \\\hline 2024 \text { and thereafter } & 0 & 0 \\\hline\end{array}$$ Required:
Determine whether either product line is impaired, and if so, the amount of the impairment.

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Definitions:

Statement of Values

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Code of Conduct

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Financial Loss

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