Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

March 2025 ACCA Exams

Comments & Instant poll >>

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for June 2025 exams.
Get your discount code >>

F7 Chapter 14 Questions

VIVA

Reader Interactions

Comments

  5. Mike, could you please explain Q3 every detail?

    you omit several steps, so I can’t understand the working fully.

    moreover, the recoverable amount should be $88,300?

    how to figure out the discounted figure “77,312”?

    I know the greater one is $88,300, but suddenly impairment loss is Nill?

    what is the cv?

    • “how to figure out the discounted figure “77,312”?” = $30,000 for each of 3 years discounted at 8% cost of capital

      After 1 year that $30,000 is worth $30,000 x 1/1.08 = $27,777

      After 2 years that $30,000 is worth $30,000 x 1/1.08 x 1/1.08 = $25,720

      After 3 years that $30,000 is worth $30,000 x 1/1.08 x 1/1.08 x 1/1.08 = $23,815

      So the $30,000 for 3 years has a cumulative value of $77,312 value in use

      “moreover, the recoverable amount should be $88,300?” – the recoverable amount is the higher of value in use and net selling price

      Net selling price is $88,700 (having deducted the costs of dismantling and delivery) so recoverable amount is $88,700

      This is compared with the carrying value (calculated as $88,300 and that figure itself is calculated as ($97,000 – $10,000 scrap value) less depreciation of 4 months out of remaining estimated useful life of 40 months

      So $87,000 x 4/40 = $8,700 depreciation and thus the carrying value as at 30 June must be $97,000 – $8,700 = $88,300

      And this figure of $88,300 is lower than the recoverable amount so no impairment is necessary

      OK?

    • Richard, check out the specimen exams and, so far as they are available, the past exams where mcqs are shown

      NB, even if they may not be similar to past exam questions, the principles are important so you can apply those principles to exam question scenaria

  8. Hi Mike,

    Question 4… Why when market interest rates fall, value in use of an asset increases? Would you be able to explain that in a different way?

    After thinking for a while, I cannot see that unfortunately…

    Thanks

    Ismael

    • When interest rates fall, the value in use calculation falls because it’s calculated as the PRESENT value of future flows

      Say you have a future flow in one year’s time of $1,000 and a cost of capital of 10%

      The present value of that flow is $909,09

      If the cost of capital falls to, say, 8%, the present value of that same $1,000 would be $925.93

      OK?

      Hint – in situations like this it often helps to put made-up figures into a calculator and see the results after “What happens if …”

    • 60 : 90

      120,000 is the carrying value of 2 engines so 60,000 is the carrying value of number 2 engine

      Tracks and stations had a carrying value of 90,000

      Engine number 1 is written down to 10,000, the brand is impaired down to 65,000, goodwill is written off and there’s no change to the net current assets

      So the 2 categories that will share the remaining 25,000 impairment are the remaining engine of 60,000 and the tracks and stations of 90,000

      60,000/150,000 x 25,000 = $10,000 impairment for engine number 1 and

      90,000/150,000 x 90,000 = $15,000 impairment for the tracks and stations

      OK?

  12. I don’t understand why there is no impairment in question 3.

    If carrying amount > recoverable amount then there should be impairment and this is the case: 88.300 > 87.700.

    Is the value in use really only 77.312? What about scrapping? Shouldn’t it count as net cash flow paid for the disposal of the asset? Should disposal paid also be discounted?

    • 30.000*1/1,08 per year *3?

      What you have done is take the first year’s present value and multiplied by 3

      You may as well have taken 90.000*1/1,08!

      What you should have done is….

      find the present value of $30,000 after 1 year

      find the present value of $30,000 after 2 years

      find the present value of $30,000 after 3 years

      and add them together

      OK?

    • 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.

      • $2,800!

        $3,500 – (3,500/7,500*$1,500)

        OK?

        Where’s this question from – it’s not one of mine!

        If not, then it should be in the Ask ACCA Tutor forum and not as a question unrelated to the chapter questions that are the basis of this thread

Leave a Reply