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Dear Tutor,
I am not able to understand which calculations do I need to do exactly in order to arrive to the solution of mini questions Q2 and Q3. Could you help me, please?
Thank you in advance!
You mean “revision questions” not mini-questions I believe
For question 2 you are asked to calculate the values of the remaining engine and the goodwill after the impairment loss has been accounted for
For question 3 you are asked to calculate the value of the impairment loss that the directors should account for
I’m not sure that I understand why you need to ask “which calculations do I need to do exactly”
The calculations involved in question 2 need to be exact only to the nearest $1,000
In question 3 the figure (half way down the question) $92,450 needs to be changed to $93,450
I am reading and reading the notes but I am not able to solve those two problems.
For Q2 I reasoned that the value of remaining engine is $60,000 (120,000/2) and I do not know from where to get to the goodwill.
For Q3 I got as CV: $87,300, NSP: $88,700 and VIU: $81,445, so amount of asset is the one of CV. How do I get to the impairment loss with the available data, please?
Thank you in advance for your patience.
I have, in my list of corrections, one for question 3 – I need to change the figure of $92,450 to $93,450
The value in use should be the PRESENT VALUE of the future cash flows – you appear not to have applied discounting!
And I believe that your calculation of carrying value is incorrect – I arrive at a figure of $88,300
Re question 2, the second engine carrying value IS $60,000 but that is subject to impairment on a pro-rata basis
Re goodwill, is the figure not given in the question?
If I understood correctly,
in q2:
remaining engine value: 120,000-60,000(motor lost)-10,000(impairment loss)=50,000
goodwill: 70,000-60,000(motor lost)-10,000(impairment loss)However, I cannot understand why “the second engine CV is subject to impairment on a pro-rata basis”? I ask because I am finding it difficult to fully understand ‘Impairment of Assets’ subject.
in q3:
After recalculating, I got: CV: $88,300, NSP: $88,700 and VIU: $85,251
Recoverable Amount is: NSP.
Since NSP>CV, then there is no Impairment Loss.Did I understand correctly?
Show the assets as:
Engine Engine Track Brand G/will NCA Total
60 60 90 80 70 150 510
(50) – – (15) (70) – (135)10 60 90 65 – 150 375
Now impair total down to 350 so another 25 impairment needed
We never impair to an amount below recoverable amount, so nothing comes off NCA
That means 25 impairment spread pro-rata over the remaining Engine and the Track in the ratio of 60:90
and that means that, of the 25 to be impaired, 10 will go against the second engine and 15 against the track
OK now?
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