What Is the Impairment Test for Long-Term Plant Assets

question 140

Multiple Choice

What is the impairment test for long-term plant assets?

• A)Is the net book value greater than the fair value?
• B)Is the fair value greater than the net book value?
• C)Is the net book value greater than the estimated future cash flows?
• D)Are the estimated future cash flows greater than the net book value?

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Definitions:

Full Capacity

The maximum level of output that a company can produce under normal conditions over a given time period.

EFN

Expected Funds Needed, an estimation of the additional financing a company will require in the future based on its projected growth and existing financial structure.

Sustainable Growth Rate

The maximum rate at which a company can grow its sales and earnings without increasing leverage or debt financing.