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Hi Mike
After struggling to understand the exam answer I still don’t under why 1Aug 2011 (x $300) and 30Sep 2011 (x $100). Please help to explain in details. Thank you
1) Impairment on 1Aug 2011 – $’000
Why License, Property, Rail track & coaches x $300License 1200/1800 x $300 = 1,000
Property 300/1800 x $300 = 50
Rail Track & Coaches 300/1800 x $300 = 502) Impairment on 30Sep 2011 – $’000
Why License, Property, Rail track & coaches x $100Property 250/500 x $100 = 50
Rail Track & Coaches 250/500 x $100 = 50Without the question available in front of me – here’s an educated guess
I believe that, after writing off the fall in value of the damaged engine and after eliminating the goodwill, there is still a further $300 to impair from the value of the business and that is being spread proportionately over the license, property, Rail track and coaches in the ratio of 4:1:1
And then, 2 months later, there is a further re-assessment of the value of the business and that further assessment requires a further $100 impairment after the license has been re-valued
How am I doing?
That $100 further impairment is allocated to the property and the rail track and coaches proportionately in the ratio 1:1
Better?
Hi Mike.Thank you for your explanation but I still do not understand how to get $300 and $100. Why using this as pro-rata calculation. Please let me know if you want me to type the question as it was too long but no website link.
OK, give me the values of the engines, property, rail track and coaches, licence, goodwill and other assets before the accident
Now tell me the value of the business on 1 August after the accident and the directors’ decisions about the individual assets where applicable ie whether any specific assets are to be written off or specifically impaired down to individual recoverable amounts
Now give me the details of the second impairment that took place on 30 September ie the revised value of the business
Hopefully we can avoid having to type out the full question but make sure that you don’t miss any important points
OK, found the question on the internet 🙂
The initial accident caused the value of the bust to be re-assessed downwards from $3,000 to $2,000 = a fall of $1,000
This impairment is allocated in sequence as follows:
1) $500 from the engines (one destroyed)
2) $200 from goodwillAnd that leaves us with a further $300 to impair against the remaining assets proportionately
The proportions are $1,200 : $300 : $300 or 4 : 1 : 1
So the impairments are respectively:
4 / 6 x $300 = $200 against the licence
1 / 6 x $300 against the property
1 / 6 x $300 = $50 against the rail track and coachesleaving us with reduced carrying values of:
Licence $1,000
Property $250
Rail track and coaches $250But there’s more bad news to come as a further impairment is necessary 2 months later – a further $200 must be written off bringing the assets down to $1,800
Again, an individual asset can be identified – the licence has a recoverable amount of $900 so $100 will come off the value of the licence and that leaves us with a further $100 to impair against property and rail track and coaches in their relative proportions
Before this second impairment both these assets had a carrying value of $250 so this extra $100 will be allocated proportionately ie equally with $50 going against each of these two assets
The carrying value of the various assets is now:
Goodwill $Nil
Licence $900
Property $200
Rail track and coaches $200
Engine $500giving a total of $1,800
OK now?
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