Chapter 10 Quiz - Gleim - AB 301
All of the following would be included as part of the cost of a depreciable asset except the -Costs to level land to make it usable for the company's purposes. -Freight costs to ship new equipment to the company's facility. -Actual interest costs incurred during the construction of a new building. -Costs to construct a driveway on the company's property.
Freight costs to ship new equipment to the company's facility. This answer is incorrect. Costs of equipment include (1) the purchase price (including sales taxes); (2) freight-in, handling, insurance, and storage until use begins; (3) preparation, installation, and start-up costs, such as testing and trial runs; and (4) reconditioning used assets.
Charm Co. owns a delivery truck with an original cost of $10,000 and accumulated depreciation of $7,000. Charm acquired a new truck by exchanging the old truck and paying $2,000 in cash. The new truck has a fair value of $5,000 at the time of the exchange. What amount of gain or loss should Charm recognize? $0 $2,000 gain. $2,000 loss. $3,000 loss.
$0 This answer is correct. The nonmonetary exchange of assets is measured at the fair value of the new truck received because the fair value of the truck given up is not available. The gain or loss on the exchange is the difference between the fair value of the truck received of $5,000 and the total carrying amount of the assets given up of $5,000 [($10,000 - $7,000) carrying amount of old truck + $2,000 cash paid]. Accordingly, no gain or loss is recognized on this nonmonetary exchange.
Fountain Co. is constructing an office building for its own use. Fountain started the 2-year construction project on April 1, Year 1, at which point the interest capitalization period began. Fountain made the following payments in Year 1 related to the construction of the building: April 1: Payment to architect for building plans $30,000 July 1: Progress payment to contractor $60,000 October 1: Progress payment to contractor $150,000 For the purpose of capitalizing interest, what is Fountain's weighted-average accumulated expenditures for the year ended December 31, Year 1? $80,000 $105,000 $120,000 $240,000
$120,000 This answer is correct. Capitalized interest equals the weighted-average accumulated expenditures (AAE) for the qualifying asset during the capitalization period times the interest rate. The AAE are based on the construction-related expenditures and the amounts of time they incurred interest. Since the capitalization period and the construction started on 4/1/Year 1, the capitalization period in Year 1 is 9 months. The AAE for the year ended 12/31/Year 1 are calculated as follows: 4/1: $30,000× (9 ÷ 9)= $ 30,000 (AAE) 7/1: $60,000× (6 ÷ 9)= 40,000 (AAE) 10/1: $150,000× (3 ÷ 9)= 50,000 (AAE) Total AAE: $120,000
Quick Co. acquired the following assets from a liquidating competitor for a $200,000 lump-sum purchase price: a. Competitor's carrying amount b. Fair value Inventory a. $ 70,000 b. $ 50,000 Land a. 40,000 b. 50,000 Building a. 110,000 b. 150,000 Total a. $220,000 b. $250,000 What amount should Quick report as the cost of the building? $100,000 $120,000 $150,000 $200,000
$120,000 This answer is correct. The cost of the group of assets acquired (lump-sum purchase price) must be allocated to individual assets based on their relative fair values. The fair value of the building is 60% ($150,000 ÷ $250,000) of the total fair value of all the assets acquired. Thus, 60% of the purchase price is allocated to the building. The cost of the building is $120,000 ($200,000 × 60%).
Slad Co. exchanged similar productive assets with Gil Co. and, in addition, paid Gil cash of $100,000. The following information pertains to this exchange: Asset: a. Relinquished by Gil b. Relinquished by Slad Carrying Amounts: a. $75,000 b. $40,000 Fair Values: a. $140,000 b. $40,000 On Slad's books, the assets acquired should be recorded at what amount if the exchange lacked commercial substance? $75,000 $100,000 $140,000 $175,000
$140,000 This answer is correct. The accounting is based on the carrying amount of the assets given when the exchange lacks commercial substance. However, if the cash paid (boot) equals at least 25% of the fair value of the exchange, both parties record a monetary exchange at fair value, with gains and losses recorded in full. The asset received should be recognized based on the fair value of the assets given up. Slad paid $100,000, an amount exceeding 25% of the $140,000 fair value of the exchange. Thus, the assets acquired by Slad are recorded at $140,000 ($40,000 fair value of productive assets given up + $100,000 boot given).
Oak Co., a newly formed corporation, incurred the following expenditures related to land and building: County assessment for sewer lines$ 2,500 Title search fees 625 Cash paid for land with a building to be demolished 135,000 Excavation for construction of basement 21,000 Removal of old building ($21,000 less salvage of $5,000) 16,000 At what amount should Oak record the land? $138,125 $153,500 $154,125 $175,625
$154,125 This answer is correct. The cost of the land should include the purchase price and such additional expenses as legal fees, title insurance, recording fees, subsequent assumption of encumbrances on the property, and the costs incurred in preparing the property for its intended use. Because the land purchased was the site of a building, the cost of razing the building, minus any proceeds received from the sale of salvaged materials, should be capitalized. Furthermore, an improvement may be capitalized even if it does not have an indefinite life (e.g., sewer lines) if (1) it is paid for by a special assessment by a local government, and (2) the government maintains and replaces it. However, the cost of excavation of the site to build a basement is a cost of a building. Thus, the initial measurement of the land is $154,125 ($2,500 assessment for sewer lines + $625 title fees + $135,000 price + $16,000 cost of building removal).
Merry Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000. Merry spent an additional $10,000 testing and preparing the machine for use. What amount should Merry record as the cost of the machine? $155,000 $145,000 $135,000 $125,000
$155,000 This answer is correct. The amount to be recorded as the acquisition cost of a machine includes all costs necessary to prepare it for its intended use. Thus, the cost of a machine used in the manufacturing operations of a company includes the cost of testing and preparing the machine for use and the shipping costs. The acquisition cost is $155,000 ($125,000 + $20,000 + $10,000).
Tomson Co. installed new assembly line production equipment at a cost of $175,000. Tomson had to rearrange the assembly line and remove a wall to install the equipment. The rearrangement cost $12,000, and the wall removal cost $3,000. The rearrangement did not increase the life of the assembly line, but it did make it more efficient. What amount of these costs should be capitalized by Tomson? $175,000 $178,000 $187,000 $190,000
$190,000 This answer is correct. The initial measurement equals the sum of the cost to acquire the equipment and the costs necessarily incurred to bring it to the condition and location necessary for its intended use. A rearrangement is the movement of existing assets to provide greater efficiency or to reduce production costs. If the rearrangement expenditure benefits future periods, it should be capitalized. If the wall removal costs likewise improve future service potential, they too should be capitalized. Thus, the capitalized cost is $190,000 ($175,000 + $12,000 + $3,000).
An asset group is being evaluated for an impairment loss. The following financial information is available for the asset group: -Carrying value $100,000,000 -Sum of the undiscounted cash flows $95,000,000 -Fair value $80,000,000 What amount of impairment loss, if any, should be recognized? $0 $5,000,000 $15,000,000 $20,000,000
$20,000,000 This answer is correct. The carrying amount of an asset group is not recoverable if it exceeds the sum of the undiscounted future cash flows expected from the use and disposition of the asset group. If the carrying amount is not recoverable, an impairment loss may be recognized equal to the excess of the carrying amount of the asset group over its fair value. Here, the carrying amount of the asset group is not recoverable because its carrying value ($100,000,000) exceeds the sum of its undiscounted cash flows ($95,000,000). Therefore, an impairment loss of $20,000,000 ($100,000,000 carrying value - $80,000,000 fair value) should be recognized.
A company exchanged land with an appraised value of $50,000 and an original cost of $20,000 for machinery with a fair value of $55,000. Assuming that the transaction has commercial substance, what is the gain on the exchange? $0 $5,000 $30,000 $35,000
$30,000 This answer is correct. As the transaction has commercial substance and the fair value of both assets in a nonmonetary exchange is determinable, the transaction is measured at the fair value of the asset(s) given up, and any gain or loss is recognized immediately (accounted for as a monetary exchange). The gain on the exchange is $30,000, which is the difference between the fair value of the land given up and its carrying value ($50,000 - $20,000). The company will record the following journal entry: DR: -Machinery $50,000 CR: -Land $20,000 -Gain on exchange $30,000
On January 1, Feld traded a delivery truck and paid $10,000 cash for a tow truck owned by Baker. The delivery truck had an original cost of $140,000, accumulated depreciation of $80,000, and an estimated fair value of $90,000. Feld estimated the fair value of Baker's tow truck to be $100,000. The transaction had commercial substance. What amount of gain should be recognized by Feld? $0 $3,000 $10,000 $30,000
$30,000 This answer is correct. The transaction had commercial substance. Thus, Feld should account for this exchange of nonmonetary assets at fair value. The asset received is measured at the total fair value of assets given up. The truck given up has a carrying amount of $60,000 ($140,000 cost - $80,000 acc. dep.). Thus, the recognized gain on the appreciation of the truck is $30,000 ($90,000 FV - $60,000 CA). Because the assets given up have a fair value of $100,000 ($90,000 FV of truck + $10,000 cash), the truck received is measured at $100,000. The entry is: DR: -Tow truck (fair value of assets given up) $100,000 -Accumulated depreciation $80,000 CR: -Delivery truck $140,000 -Cash $10,000 -Gain $30,000
On July 1, one of Rudd Co.'s delivery vans was destroyed in an accident. On that date, the van's carrying value was $2,500. On July 15, Rudd received and recorded a $700 invoice for a new engine installed in the van in May and another $500 invoice for various repairs. In August, Rudd received $3,500 under its insurance policy on the van, which it plans to use to replace the van. What amount should Rudd report as gain (loss) on disposal of the van in its income statement for the year? $1,000 $300 $0 $(200)
$300 This answer is correct. Gain (loss) is recognized on an involuntary conversion equal to the difference between the proceeds and the carrying amount. The carrying amount includes the carrying value at July 1 ($2,500) plus the capitalizable cost ($700) of the engine installed in May. This cost increased the carrying amount because it improved the future service potential of the asset. Ordinary repairs, however, are expensed. Consequently, the gain is $300 [$3,500 - ($2,500 + $700)].
During the year just ended, Fox Company made the following expenditures relating to plant machinery and equipment: -Renovation of a group of machines at a cost of $50,000 to secure greater efficiency in production over their remaining 5-year useful lives. The project was completed on December 31. -Continuing, frequent, and low-cost repairs at a cost of $35,000. -A broken gear on a machine was replaced at a cost of $5,000. What total amount should be charged to repairs and maintenance? $35,000 $40,000 $85,000 $90,000
$40,000 This answer is correct. Repair and maintenance costs are incurred to maintain plant assets in operating condition. The continuing, frequent, and low-cost repairs and the replacement of a broken gear meet the definition of repairs and maintenance expense. Accordingly, the amount that should be charged to repairs and maintenance is $40,000 ($35,000 + $5,000). The renovation cost increased the quality of production during the expected useful life of the group of machines. Hence, this $50,000 cost should be capitalized.
Star Co. leases a building for its product showroom. The 10-year nonrenewable lease will expire on December 31, Year 6. In January Year 1, Star redecorated its showroom and made leasehold improvements of $48,000. The estimated useful life of the improvements is 8 years. Star uses the straight-line method of amortization. What amount of leasehold improvements, net of amortization, should Star report in its June 30, Year 1, balance sheet? $45,600 $45,000 $44,000 $43,200
$44,000 This answer is correct.General improvements to leased property should be capitalized as leasehold improvements and amortized in accordance with the straight-line method over the shorter of their expected useful life or the lease term. Because the remaining lease term is less than the estimated life of the improvements, the cost should be amortized equally over 6 years. On 6/30/Year 1, $44,000 {$48,000 - [($48,000 ÷ 6 years) × 1/2 year]} should be reported for net leasehold improvements.
On December 1, Boyd Co. purchased a $400,000 tract of land for a factory site. Boyd razed an old building on the property and sold the materials it salvaged from the demolition. Boyd incurred additional costs and realized salvage proceeds during December as follows: Cost to raze old building $50,000 Legal fees for purchase contract and to record ownership 10,000 Title guarantee insurance 12,000 Proceeds from sale of salvaged materials 8,000 In its December 31 balance sheet, Boyd should report a balance in the land account of $464,000 $460,000 $442,000 $422,000
$464,000 This answer is correct.When land is acquired as a factory site, the cost of the land should include the purchase price of the land and such additional expenses as legal fees, title insurance, recording fees, subsequent assumption of encumbrances on the property, and the costs incurred in preparing the property for its intended use. Because the land was purchased as a factory site, the cost of razing the old building, minus any proceeds received from the sale of salvaged materials, should be capitalized as part of the land account. Thus, the amount to be reported as land is $464,000 ($400,000 + $10,000 + $12,000 + $50,000 - $8,000).
Ott Co. purchased a machine at an original cost of $90,000 on January 2, Year 1. The estimated useful life of the machine is 10 years, and the machine has no salvage value. Ott uses the straight-line method to calculate depreciation. On July 1, Year 10, Ott sold the machine for $5,000. What is the amount of gain or loss on the disposal of the machine? $500 loss. $500 gain. $4,500 loss. $4,500 gain.
$500 gain. This answer is correct. The gain (loss) on disposal of the machine is calculated as the difference between the proceeds received and the carrying amount of the machine on the transaction date. The carrying amount of the machine on July 1, Year 10, is $4,500 [$90,000 depreciable base of the machine × (0.5 years of remaining useful life ÷ 10 years total useful life)]. Therefore, the gain on disposal is $500 ($5,000 - $4,500).
Bell and Mayo are independent entities. Each owns a tract of land being held for development. However, each would prefer to build on the other's land. Accordingly, they agreed to exchange their land. From an independent appraisal report and the entities' records, the following information was obtained: a. Bell's Land b. Mayo's Land Cost and carrying amount a. $80,000 b. $50,000 Fair value a. 100,000 b. 85,000 Based on the difference in fair values, Mayo paid $15,000 to Bell. If Mayo did not consider the exchange to have commercial substance, at what amount should Mayo record the receipt of land? $100,000 $85,000 $65,000 $50,000
$65,000 This answer is correct. Accounting for a nonmonetary transaction should be based on the carrying amount of the asset(s) given up when the exchange lacks commercial substance. In addition, when the transaction includes monetary consideration (boot), if the boot is less than 25% of the fair value of the exchange, the recipient (but not the payer) of the boot should adjust the carryover basis for a portion of the gain. The payer of boot should record the asset received at an amount equal to the carryover basis of the nonmonetary asset given up plus the boot paid. In this situation, because the boot equals 15% ($15,000 ÷ $100,000) of the fair value of the exchange, Mayo should record the land received from Bell at $65,000 ($50,000 carrying amount + $15,000 boot).
On January 2, Dix Co. replaced its boiler with a more efficient one. The following information was available on that date: -Purchase price of new boiler $60,000 -Carrying amount of old boiler 5,000 -Fair value of old boiler 2,000 -Installation cost of new boiler 8,000 The old boiler was sold for $2,000. What amount should Dix capitalize as the cost of the new boiler? $68,000 $66,000 $63,000 $60,000
$68,000 This answer is correct. When a fixed asset is replaced, the new asset should be recorded at its purchase price plus any incidental costs necessary to make the asset ready for its intended use. Consequently, the replacement boiler should be recorded at $68,000 ($60,000 purchase price + $8,000 installation cost). In addition, the $5,000 carrying amount of the old boiler should be removed from the accounts, and a loss of $3,000 ($2,000 proceeds - $5,000 carrying amount) should be recognized.
Fact Pattern: Blake Corporation has determined that one of its machines has experienced an impairment in value. However, the company expects to continue to use the asset for another 3 full years because no active market exists for this machine. Selected information on the impaired asset (on the date that impairment was determined to exist) is provided below. -Original cost of the machine $22,000 -Carrying amount of the machine 20,000 -Undiscounted future cash flows expected to be generated by the machine 15,000 -Fair value of the machine (determined by calculating the present value of the future cash flows expected to be generated by the machine) 12,000 What is the amount of the impairment loss to be recorded by Blake? $3,000 $5,000 $7,000 $8,000
$8,000 This answer is correct. The impairment loss is the difference between the carrying amount and fair value of the asset ($20,000 - $12,000 = $8,000).
Sea Manufacturing Corp. is constructing a new factory building. During the current calendar year, Sea made the following payments to the construction company: January 2 $1,000,000 December 3 $11,000,000 Sea has an 8%, 3-year construction loan of $3,000,000. What is the amount of interest costs that Sea may capitalize during the current year? $0 $80,000 $160,000 $240,000
$80,000 This answer is correct. Interest incurred during the construction of a qualifying asset (e.g., an asset that is constructed or produced by the entity for its own use) must be capitalized as part of an asset's initial cost. Capitalized interest equals the weighted average accumulated expenditures (AAE) for the qualifying asset during the capitalization period times the interest rate(s). The weighting is based on the time expenditures incurred interest. The AAE for the year is calculated as follows: Date: Expenditures × Time Outstanding = AAE January 2: $1,000,000×(12 of 12)=$1,000,000 December 31: 1,000,000×(0 of 12)=0 Total = $1,000,000 If a specific borrowing outstanding during the period can be identified with the asset, the rate on that obligation may be applied to the extent that the AAE do not exceed the amount borrowed. Thus, the 8% interest rate on the 3-year construction loan is used to calculate the interest to be capitalized. Interest cost of $80,000 ($1,000,000 AAE × 8% specific borrowing rate) must be capitalized during the current year.
Sun Co. was constructing fixed assets that qualified for interest capitalization. Sun had the following outstanding debt issuances during the entire year of construction: -$6,000,000 face value, 8% interest -$8,000,000 face value, 9% interest None of the borrowings were specified for the construction of the qualified fixed asset. Average expenditures for the year were $1,000,000. What interest rate should Sun use to calculate capitalized interest on the construction? 8.00% 8.50% 8.57% 9.00%
8.57% This answer is correct. The costs necessary to bring an asset to the condition and location of its intended use are part of the historical cost. Interest incurred during construction is such a cost and must be debited to the internally constructed asset. No new borrowings were outstanding during the period that can be identified with the ICA. Thus, the interest rate used is the weighted-average rate on other borrowings outstanding during the period. It is calculated as follows: [$6,000,000 ÷ ($6,000,000 + $8,000,000)] × 8% =3.43% [$8,000,000 ÷ ($6,000,000 + $8,000,000)] × 9% =5.14% Total (3.43% + 5.14%) = 8.57%
Markson Co. traded a concrete-mixing truck with a book value of $10,000 to Pro Co. for a cement-mixing machine with a fair value of $11,000. Markson needs to know the answer to which of the following questions in order to determine whether the exchange has commercial substance? -Does the book value of the asset given up exceed the fair value of the asset received? -Is the gain on the exchange less than the increase in future cash flows? -Are the future cash flows expected to change significantly as a result of the exchange? -Is the exchange nontaxable?
Are the future cash flows expected to change significantly as a result of the exchange? This answer is correct. An exchange has commercial substance if it is expected to change the entity's cash flows significantly.
The types of assets that qualify for interest capitalization are -Assets that are being used in the earning activities of the reporting entity. -Assets that are ready for their intended use in the activities of the reporting entity. -Assets that are constructed for the reporting entity's own use. -Inventories that are manufactured in large quantities on a continuing basis.
Assets that are constructed for the reporting entity's own use. This answer is correct. Interest should be capitalized for (1) assets constructed or otherwise produced for an entity's own use, including those constructed or produced by others; (2) assets intended for sale or lease that are constructed or produced as discrete projects (e.g., ships); and (3) certain equity-based investments. An asset constructed for an entity's own use qualifies for capitalization of interest if (1) relevant expenditures have been made, (2) activities necessary to prepare the asset for its intended use are in progress, and (3) interest is being incurred. The investee must have activities in progress necessary to commence its planned principal operations and be expending funds to obtain qualifying assets for its operations.
A lessee incurred costs to construct office space in a leased warehouse. The estimated useful life of the office is 10 years. The remaining term of the nonrenewable lease is 15 years. The costs should be -Capitalized as leasehold improvements and amortized over 15 years. -Capitalized as leasehold improvements and amortized over 10 years. -Capitalized as leasehold improvements and expensed in the year in which the lease expires. -Expensed as incurred.
Capitalized as leasehold improvements and amortized over 10 years. This answer is correct.General improvements to leased property should be capitalized as leasehold improvements and amortized in accordance with the straight-line method over the shorter of their expected useful life or the lease term. The 10-year useful life is shorter than the 15-year remaining lease term.
Property, plant, and equipment are conventionally presented in the balance sheet at -Replacement cost less accumulated depreciation. -Historical cost less salvage value. -Original cost adjusted for general price-level changes. -Historical cost less depreciated portion thereof.
Historical cost less depreciated portion thereof. This answer is correct. Property, plant, and equipment are recorded at their acquisition cost. They are then measured at their historical cost attribute. When property, plant, and equipment are used in normal operations, this historical cost must be allocated (depreciated) on a systematic and rational basis to the accounting periods in which they are used. Land is an exception because it is not depreciated.
Which of the following statements correctly describes the proper accounting for nonmonetary exchanges that are deemed to have commercial substance? -It defers any gains and losses. -It defers losses to the extent of any gains. -It recognizes gains and losses immediately. -It defers gains and recognizes losses immediately.
It recognizes gains and losses immediately. This answer is correct. When the fair value of both assets in a nonmonetary exchange is determinable, the transaction is treated as a monetary exchange. Thus, it is measured at the fair value of the assets given up, and any gain or loss is recognized immediately. When certain exceptions apply, the accounting for a nonmonetary exchange is based on the carrying amount of the assets given up. Unless boot is received, no gain is recognized. The following are the exceptions: (1) neither the fair value of the assets given up nor the fair value of the assets received is reasonably determinable; (2) the exchange involves inventory sold in the same line of business that facilitates sales to customers, not parties to the exchange; or the exchange lacks commercial substance; that is, an entity's cash flows are not expected to change significantly.
A company has experienced operating losses from its appliances division for the past five years. The division is the lowest level of identifiable cash flows. Having determined the division is the lowest level of identifiable cash flows, the company's next step in performing its impairment test is to -Perform a recoverability test on the carrying amount of the division's assets. -Reduce the carrying amount of the division's assets to the amount of expected divisional cash flows. -Adjust the carrying amount of the division's assets to fair value. -Adjust the carrying amount of the division's assets to replacement value.
Perform a recoverability test on the carrying amount of the division's assets. This answer is correct. Testing for impairment occurs when events or changes in circumstances indicate that the carrying amount of a long-lived asset or asset groups may not be recoverable. The impairment test is a two-step test. The first step is the recoverability test, in which the carrying amount is compared with the sum of the undiscounted future cash flows expected from the use and disposition of the asset. The second step is performed only if the carrying amount is greater than the fair value. In the second step, the carrying amount is compared with the fair value. An impairment loss is recognized for the excess of the carrying amount over the fair value.
An asset classified as held for sale has been reclassified as held and used. The asset is measured at the -Fair value minus cost to sell at the date of the decision not to sell. -The fair value at the date of the decision not to sell. -Carrying amount before the asset was classified as held for sale minus any depreciation over that time. -The lower of (1) the carrying amount before the asset was classified as held for sale, minus any depreciation that would have been recognized if the asset had been held and used, or (2) the fair value at the date of the decision not to sell.
The lower of (1) the carrying amount before the asset was classified as held for sale, minus any depreciation that would have been recognized if the asset had been held and used, or (2) the fair value at the date of the decision not to sell. This answer is correct. The plan of sale may change because of previously unlikely circumstances, resulting in a decision not to sell. The asset then must be reclassified as held and used. It is remeasured individually to the lower of (1) the carrying amount before the asset was classified as held for sale, minus any depreciation (amortization) that would have been recognized if the asset had been held and used, or (2) the fair value at the date of the decision not to sell.
When should a long-lived asset be tested for recoverability? -When external financial statements are being prepared. -When events or changes in circumstances indicate that its carrying amount may not be recoverable. -When the asset's carrying amount is less than its fair value. -When the asset's fair value has decreased, and the decrease is judged to be permanent.
When events or changes in circumstances indicate that its carrying amount may not be recoverable. This answer is correct. A long-lived asset is impaired when its carrying amount is greater than its fair value. However, a loss equal to this excess is recognized for the impairment only when the carrying amount is not recoverable. The carrying amount is not recoverable when it exceeds the sum of the undiscounted cash flows expected from the use and disposition of the asset. Testing should occur when events or changes in circumstances indicate that the carrying amount may not be recoverable.
Testing for possible impairment of a long-lived asset (asset group) that an entity expects to hold and use is required -At each interim and annual balance sheet date. -At annual balance sheet dates only. -Periodically. -Whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.
Whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. This answer is correct. A long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount is not recoverable when it exceeds the sum of the undiscounted cash flows expected to result from the use and disposition of the asset (asset group). If the carrying amount is not recoverable, an impairment loss is recognized equal to the excess of the carrying amount over the fair value.