https://r2.erweima.ai/mathbot/image/1725574218951its4nn86.jpg

The image you have uploaded contains a financial accounting problem related to asset impairment and adjusting its book value. Here is the text extracted from the image:

---

**Problem (Translation):**

A company owns an asset with a *useful life* of 10 years, with an acquisition cost of R$100,000.00. In its last Balance Sheet, accumulated depreciation was recorded at R$ 52,000.00, leaving the book value at R$ 48,000.00. Due to changes in its financial outlook, the company believes the *market value* of this asset is R$ 20,000.00. The task is to adjust the asset’s book value in the company's financial records, so that the Balance Sheet reflects a more accurate value. 

Additionally, the company expects future cash flows from the use of the asset as follows:

| Year | Expected Cash Flow (R$) |
|------|-------------------------|
| 1    | 12,000.00               |
| 2    | 16,000.00               |
| 3    | 18,000.00               |
| 4    | 15,000.00               |
| 5    | 15,726.00               |

Using a *discount rate* of 12%, determine the *present value* of these expected cash flows and analyze whether the asset should be written down further. Based on this, should the company continue to use this asset or recognize further impairment losses?

---

### Solution Strategy:

1. **Calculate Present Value (PV) of Cash Flows**: We use the *discount rate* (12%) to calculate the present value of future cash flows.
   \[
   PV = \sum \frac{\text{Cash Flow}_t}{(1 + r)^t}
   \]
   where:
   - $ \text{Cash Flow}_t $ is the expected cash flow in year $ t $,
   - $ r $ is the discount rate (12%).

2. **Compare PV to Book Value**: After calculating the present value of the cash flows, compare it to the current book value of R$48,000. If the present value is lower than R$48,000, the asset should be written down to its market value or further impairment is necessary.

Let me calculate the present value of the cash flows.The present value (PV) of the expected cash flows, discounted at a rate of 12%, is approximately R$ 54,737.56.

### Analysis:
- The current book value of the asset is R$ 48,000.00.
- Since the present value of the future cash flows (R$ 54,737.56) is higher than the book value, there is **no need** to recognize an impairment loss at this time.

The company can continue using the asset as it is, without needing to adjust its book value further, based on the expected future cash flows and discount rate provided.

Would you like more details or have any other questions?

---

Here are 5 questions to explore further:
1. How is the discount rate of 12% determined in asset valuation?
2. What would happen if the market value (R$ 20,000) was used instead of future cash flows?
3. How does accumulated depreciation affect the book value and asset impairment?
4. What are the consequences of overestimating cash flows in such calculations?
5. What alternative methods exist for valuing long-term assets?

**Tip:** Regularly reviewing asset valuations against their fair value helps prevent financial misstatements.

A company owns an asset with a cost of R$ 100,000, with accumulated depreciation of R$ 52,000, leaving a book value of R$ 48,000. The company needs to adjust the asset's book value as it estimates its market value at R$ 20,000. Expected future cash flows for the next five years are provided, and the discount rate is 12%. Should the company recognize an impairment based on the present value of future cash flows?

Learn how to evaluate asset impairment by calculating the present value of future cash flows using a 12% discount rate. The problem involves depreciation, cash flow estimation, and market value assessment, making it suitable for finance and accounting students.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation