ACCA FR · Guided practice (Show me how)
Chapter 7: Impairments (IAS 36)
Allocating an impairment loss across a cash-generating unit
CGU impairment. Peter owned 100% of the equity share capital of Sharon, a wholly-owned subsidiary. The assets at the reporting date of Sharon were as follows ($000): goodwill 2,400; buildings 6,000; plant and equipment 5,200; other intangibles 2,000; receivables and cash 1,400; total 17,000.
On the reporting date a fire within one of Sharon's buildings led to an impairment review being carried out. The recoverable amount of the business was determined to be $9.8 million. The fire destroyed some plant and equipment with a carrying value of $1.2 million and there was no option but to scrap it.
The other intangibles consist of a licence to operate Sharon's plant and equipment. Following the scrapping of some of the plant and equipment a competitor offered to purchase the licence for $1.5 million.
The remaining plant and equipment has a recoverable amount (fair value less costs of disposal) at least its carrying amount after the destroyed plant is scrapped.
The receivables and cash are both stated at their realisable value and do not require impairment.
Show how the impairment loss in Sharon is allocated amongst the assets. (The notes' rule: allocate the loss to 1. specific assets, 2. goodwill, 3. remaining assets pro-rata, subject to their individually determined recoverable amounts.)
(a) The total loss and the first allocations
Calculate Sharon's total impairment loss at the reporting date and the impairment loss remaining after the allocations to the destroyed plant, goodwill and the licence.
(b) Allocating the remaining impairment
Calculate the remaining impairment loss allocated to Sharon's buildings and the carrying amount of its plant and equipment at the reporting date.
Opening this exercise…