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Telepath Co also owns Rilda Co, a 100% subsidiary, which is treated as a cash generating unit. On 30 September 20X3, there was animpairment to Rilda’s assets of $3,500,000. The carrying amount of the assets of Rilda Co immediately before the impairment were:
$
Goodwill 2,000,000
Factory building 4,000,000
Plant 3,500,000
Receivables and cash (at recoverable amount) 2,500,000
__________
12,000,000
__________
What is the carrying amount of Rilda Co’s plant at 30 Sept 20X3 after the impairment loss has been correctly allocated to its assets?Please assist by giving detailed solution.
$3,500,000 to impair
Write off goodwill in full – that’s $2,000,000 gone and $1,500,000 to go
Can’t touch the receivables and cash – they’re already at recoverable amount and we don’t impair below recoverable amount
So that leaves us with $1,500,000 to impair against the building and plant on a proportional basis and those proportions are respectively 8:7 ($4,000,000:$3,500,000)
So 8/15 x $1,500,000 will be impaired against the building and 7/15 x $1,500,000 against the plant
That’s $800,000 to come off the buildings leaving us with $3,200,000 and $700,000 to come off the plant leaving us with $2,800,000
And that means that we’re left with:
Goodwill $Zero
Building $3,200,000
Plant $2,800,000
Receivables and cash $2,500,000and a total of $8,500,000
That compares with the starting position of $12,000,000 so we have successfully impaired by $3,500,000
OK?
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