If a capital asset originally cost $25 million and has a carrying value of $10 million with a deflated depreciated replacement cost of $2.75 million, what is the impairment loss?

To determine the impairment loss for the capital asset, the impairment loss is calculated by comparing the carrying value of the asset to its recoverable amount, which in this context is represented by the deflated depreciated replacement cost.

The carrying value of the asset is reported as $10 million. The recoverable amount, based on the deflated depreciated replacement cost, is $2.75 million.

When calculating the impairment loss, you subtract the recoverable amount from the carrying value:

Impairment Loss = Carrying Value - Recoverable Amount
Impairment Loss = $10 million - $2.75 million
Impairment Loss = $7.25 million

This reveals that the correct amount of impairment loss is $7.25 million, indicating how significantly the asset's value has decreased in economic terms. Understanding this calculation is crucial because impairment losses reflect the decline in the value of assets, ensuring that financial statements accurately represent an organization’s financial position.

Thus, the correct answer reflects this calculation, indicating that the impairment loss is $7.25 million.