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Chapter 13: 13BE (page 658)

Presented below are two independent cases related to available-for-sale debt investments.

Case 1 Case 2

Amortized cost \(40,000 \)100,000

Fair value 30,000 110,000

Expected credit losses 25,000 92,000

For each case, determine the amount of impairment loss, if any

Short Answer

Expert verified

Case 1: Impairment loss is $10,000

Case 2: Impairment loss is $0

Step by step solution

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01

Impairment loss

Impairment loss means when the amortized cost is greater than the fair value.

02

Step 2:Impairment loss in case 1

In Case 1, the fair value is less than amortized cost, which means there is a loss. Hence, the amount of the impairment loss is $10,000

03

Step 3:Impairment loss in case 2

In case 2, the fair value is greater than the amortized cost, which means there is unrealized gain. This means there is no loss, so the amount of impairment loss is $0.

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