medium · CFA Level I fsa
Ironvale Mining carries a specialized excavator at a cost of 500,000 with accumulated depreciation of200,000. Due to a market downturn, it performs an impairment test. The undiscounted future cash flows are 310,000. The fair value less costs to sell is270,000, and the value in use is 290,000. If Ironvale capitalizes40,000 of interest on the excavator's construction rather than expensing it, its Year 1 interest coverage ratio (EBIT / Interest Expense) will:
- Increase
- Remain the same
- Decrease
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