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An enterprise purchases a haulage company for $50,000 on 1 Jan 20X0. The operation consists of an operating license with a net selling price of $10,000 and 5 wagons each with a net selling price of $6,000.
On 1 Jun 20X0, one of the wagons crashed and the insurance company refused to settle any liability due to non disclosure of certain material facts. The wagon was a write-off.
The adverse publicity and operating capacity reduction, reduces the value in use of the business to $25,000. The net selling price of the operating license was diminished to $ 9,500.
What’s the carrying value of the asset after accounting for the impairment losses under IAS 36 ‘ Impairment of Assets’?Goodwill=Nill, license = nil & wagons=$25,000
Goodwill=Nill, license = $9,500& wagons=$15,500
Goodwill=$10,000, license = $9,500 & wagons=$5,500
Goodwill=$5,000, license = $5,000 & wagons=$15,000Goodwill @acquisition 50000-(10000 + (5*6000)) = 10,000/- (fig. in $)
#1 Impairment in Assets:
Operating Lease= $ 500.
Net Book Value of operating license at the year end $9500/- ($10000-$500).#2 Impairment in overall value of the business $ 25000
Charged first to any asset most damaged Asset:
i) Operating licence (Impairment is $ 500 see #1) ($ 500)
ii) Wagons (Crashed and caused to reduction in value of business) ($24500)
Total Nil#3 Value of:
i) Operating Licence (See #1) $9500
ii) Wagons ( $30000 – $24500) $5500
iii) Goodwill $10000I think third option is correct. Because, the assets damaged the value of business should be impaired To reflect true and fair view of the value of assets, in the Financial Statements.
I hope it will help. If this answer is not correct please tell me. I am a student like you.
Addition reading: Read BPP ACCA F7 study text, Chapter 5, section 4 (Accounting treatment of a impairment loss).
Thank you
CKLP – your effort is hopelessly incorrect!
Goodwill is eliminated in full ($10,000)
The licence is reduced to $9,500 (impair by $500)
The wagons are reduced so that the total carrying value is $25,000 (reduce by $14,500)
So goodwill is $zero, licence is $9,500 and wagons are $15,500
Option (b) is correct
m0542128150 – why are you posting your questions twice? Here at 10.51 am and on Ask ACCA Tutor at 10.57?
And when CKLP answers you (incorrectly) you happily believe that answer even though CKLP specifically tells you that he (she?) is a student the same as you
You’ve posted other questions twice too!
If you want an answer that you have a better chance of being correct, post once, just once, on Ask ACCA Tutor page and I shall get back to you
I did for this question, but you didn’t come back with any response to my answer
Beware CKLP bearing gifts – they could well be incorrect!
I am so sorry, but thanks Mike, as 4 out of 5 Wagons are working, so the reduction in the value of the business will be reflected by reducing goodwill.
Thus the option B is correct.
I will double check my answer before posting next. Thanks for rectifying my Mistake.
Hello Mike,
I am bit confused about the answer. What about the depreciation of the 5 months passed? Don’t we need to deduct the depreciation before we calculate the impairment loss and then assignment impairment to the assets?I hope to hear from you soon.
Best Regards,
ZeeshanSorry for this cosine but i was asking for any body how have a any book demonstrating impairment of asset and revaluation please he or she can send to through my email address
princegiba4@gmail.com or whats app number +255 759831063. please and please
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