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On 1st January A ltd has a building with a carrying amount of $15m and a fair value less costs to sell of $13m. The value in use is $16m. The property has a tax base of $9m and the tax rate is 25%. The board of A have plans to sell the property. A is unsure how to report the accounting issues arising from this. Please advise.
Well, it’s not impaired because recoverable amount is the HIGHER of value in use and net selling price (value in use is $16m and that exceeds the carrying value so no impairment)
However, the company has plans to sell and therefore value in use is no longer applicable …. because it’s not going to be used.
Therefore we need to consider net selling price without any tax implications
So, impair by $2m down to net selling price and then classify as asset held for sale
Did I get it right?
I agree with the above answer. Is there also a deferred tax issue regarding the asset? I would suggest a temporary difference of $4m exists ($13m-$9m) and a deferred tax liability relating to the asset of $1m therefore exists: $4m x 0.25= $1m.
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