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Hi my Dear TUTOR, I have a question above subject
The question has been taken from Bpp study text page number 418
the accountant of Orfeo co is preparing financial statements for the year ended 31December 20X7. Before these can be completed a number of issues need to be resolved
Orfeo co’s head office building was revalued on 1 july 20X7, giving rise to a surplus of $100,000.the building had an original cost of $1 million on 1 january 20×0 and a 50-year life at that date.The useful life of the building remains unchanged.
During the year one of Orfeo Co’s machines broke down and could not be fixed.the carrying amount of the machine at that date was $30000.the accountant mus now consider the issue of impairment
Because of the loss of production caused by damaged machine, orfeo co lost customers and it was decided that the whole factory unit was impaired by $120,000.orfeo co’s accountant has to decide how to allocate this impairment loss.
the carrying amounts of the assets of the factory unit at the date of the impairment review including the damaged machine was.
Goodwill-20000
factory building-440000
plant and machinery-160000
net current assets-100000
overall=720000
impairment 120000as we now that the whole of goodwill impaired-20000
the anwer has been showen
goodwill -(20000)
building-440000(54000)=386000
plant and machinery-160000(30000+16000)=114000I dud not understand the amount of 54000 where has been taken?
also 30000 was the carrying amount but 16000 became stuck ?could you explain it please?
After the goodwill has been eliminated ($20,000) and the damaged machine has been eliminated ($30,000) there remains a further $470,000 to impair
Net current assets are already stated at the lower of their cost and net realisable values, so we cannot impair them below that figure of $100,000
That means that the remaining $70,000 impairment must be deducted from the factory building and the PPE in their respective proportions of 440:130
440/570 * $70,000 = $54,000 and
130/570 * $70,000 = $16,000
Now do you see where $54,000 and $16,000 come from?
OK?
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