- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
.
- Posts
I understand that all of goodwill is first used to offset impairment losses but when we still have a residual impairment loss, how do we allocate this to Building and PPE?
A BPP revision kit said ‘prorata basis’ but please state a specific guidance because I still don’t know how to apportion it properly to other assets apart from goodwill.
Let’s say that we have total net assets of $20,500 and we need to impair by $3,000 down to $17,500 and we have the following balances just before impairment
Goodwill $900
Buildings $8,000
PPE $6,000
Net current assets $5,600$900 comes off the goodwill and leaves us with a further $2,100 to impair
Net current assets are always stated at the lower of cost and net realisable value so we cannot impair them … to do so would write them down to below their recoverable amount
That leaves us with $2,100 to write off against Buildings and PPE on a pro-rata basis
The relationship between these two assets is one of $8,000 : $6,000
ie 8:6
So 8/14 of any write down will go against the Buildings and …
… 6/14 of the write down will go against the PPE
8/14 x $2,100 = $1,200 and …
6/14 x $2,100 = $900
Therefore, our new statement of financial position will look like:
Goodwill ($900 – $900) Nil
Buildings ($8,000 – $1,200) $6,800
PPE ($6,000 – $900) $5,100
Net current assets $5,600Total net assets $17,500
Is that any clearer?
- The topic ‘Apportioning Impairment Loss’ is closed to new replies.