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Requirements:
• explain why the cash-generating units should have been tested for impairment; and• discuss whether the methods used to calculate the value in use and discount rate are acceptable.
I just comfused about its answer’s some explaining:
1. “Value in useThe lease payment outflows have been discounted at 5% for value in use (VIU) purposes whereas the interest rate implicit in the lease is 4%. Thus, the lease payment outflows would be stated at a lesser amount than the lease liabilities. This would therefore mean that the VIU is higher using Jobon Co’s method which could mean that the asset is under impaired.”
2. “In accordance with IAS 36, it may be necessary to consider liabilities to determine the recoverable amount of a CGU. This can occur if the disposal of a CGU requires the buyer to assume the liability. If this is the case, the carrying amount of the liability is deducted from both the CGU’s VIU and its carrying amount. Jobon Co has deducted the lease liabilities from the carrying amount of the CGU but has not deducted the same amount from the VIU of the CGU. Therefore, the lease payment outflows should be excluded from the determination of VIU and the carrying amount of the lease liabilities should be deducted instead.”
This was SBR-INT March/June 2024 past paper , question 3:
Jobon Co is a lessee. It leases a number of commercial properties which it uses as retail stores. As a result of an increase in customer online shopping, Jobon Co’s revenue from these retail stores has halved. Each retail store is a cash-generating unit (CGU) and comprises right-of-use assets, fixtures and fittings and allocated central assets.Jobon Co calculated that a total impairment loss of $50 million should be recognised in relation to the retail store CGUs.Jobon Co deducted the lease liabilities when calculating the net carrying amount of the CGUs for impairment purposes. Jobon Co assessed value in use (VIU) to be the recoverable amount. Instead of deducting the lease liabilities from VIU, Jobon Co included contractual lease payments within the future estimated net cash flows of the CGU.The future estimated net cash flows used to calculate VIU were determined using internal management forecasts covering the next 10 years. These future estimated net cash flows also included costs of $5 million to install advertising technology in the properties to enhance the CGU’s performance.The future estimated net cash flows were discounted at 5%. This is the weighted average cost of capital (WACC) of another company in the retail sector which purchased rather than leased its commercial properties. The interest rate implicit in the lease was 4%.
Thanks, its original answer is right, I mistakely treated the Fx loss as Fx gain. thanks again!
9,191 to reverse out of retained earnings(CR)
5,515 to foriegn exchange reserve(DR)
3,677 to NCI(DR)sorry it is my typing mistake, its original anwer is like above.
It said that : to reverse out of retained earnings, but it’s double entry logo is “CR”
Originally, its draft consolidated statement didn’t have Foriegn exchange reserve, because they put all of profit and exchange different into retained earning at that time.
do you think is it possible this answer is wrong!the above is its answer and said that:
9,191 to reverse out of retained earnings(CR)
5,515 to foriegn exchange reserve(DR)
5,515 to foriegn exchange reserve(DR)very confused about, is it a specific rule behind it?
Many thanks
$000 Retranslate Zian’s FS (W1) Retranslate goodwill FS (W2)
Assets
Non-current assets
Property,plant and equipment 384,600
Financial Assets 22,300
Goodwill 3,300 -550
Current Assets 29,000Total Assets 439,200
Equity
Share capital 60,000
Other component of equity 30,000
Foriegn exchange reserve -5,515 -550
Retained earnings 119,400 9,192
209,400Non controlling interest 19,800 -3,677
Total equity 229,200
Liabilities
Non-Current liabilities 94,000
Current liabilities 116,000Total liabilities 210,000
Total equities and liabilities 439,200This question is from acca study hub. practice question 1 Ribby Co
Many thanks
Dear Sir and Madam, I have logged in ACCA Practice Platform, I can only practice questions, I can’t find any answer of it! would you please help me?
Many thanks
The answer said that Contingent liabilities after initial recognition must be measured at the higher of the amount that would be recognised under IAS 37 provision, contingent liabilities and contingent assets and the amount initially recognised under IFRS3, I am confused it.
accordingly the answer choose $6m.However later in the end of calculation goodwill, there is last row item shown as : Contingent liability: $6m-$5m (1).
basically based on answer logical like these: when calculating net asset of entity at acquisition date, choose $6m; while when calculating goodwill especially in the last row minus $1m. I don’t understand what theory it included.
would you please explain a bit further?
Many thanks
Thanks, the Lease liability 1.9 with accumulated interest 10% deducts 5 years payment 5×500,000, in the end the lease liability will be nill.
However if Dr Lease liability 0.2; Cr Prepayment 0.2, in the end lease liability will be Debit side balance 0.2, how to deal with it?
Many thanksI think the impairment should be allocated by this priority: Firstly PPE 20; Secondly Good will 10. If the information didn’t mention PPE’s recoverable amount, and impairment allocation priority will be: Good will 30. Many thanks if there has second opinion!
Dear Stephen, the answer in the amortised value section also said that initial loan: 47×1.05 for 5 years=59.98; new loan 45×1.074 for 4 years=59.89, which they are almost identical on 30/11/2009. do you think this is an evidence of level 1 active market to measure both loan fare value as 45 at 31/11/2005?
Many thanksDear Stephen, many thanks! I will not do it, but actually I type them manually one by one.
Another question is that is the expensing contributions an another normal treatment for DB schemes?
The answer that you gave me previously mentioned error, do you think expensing contribution in P/L was mistake, and later correction by revering the expense.
Do I understand in right way?Best Regards
opening liability $15 m
net interest cost ($15mx8%) $1.2 m
Current service cost $5m
Gain on curtainment ($4m-$3m) ($1m)
Cash contribution ($6m)
subtotal $14.2
Loss on remeasurement $2.8
Closing liability $17mCorrect double entry:
Debit: OCI (and OCE) $2.8m
Credit: P/L 1.2+5-6-1 $0.8m
Credit: Non-current liabilities $2mThanks, however I have to type all relevant question in here:
Bubble operates a defined benefit scheme for its employees but has yet to record anything for the current year except to expense the cash contribution which were $6 million. the opening position was a net liability of $15 million which is included in the non-current liabilities of Bubble in its draft financial statements. Current service costs for the year were $5 million and interest rates on good quality corporate bonds fell from 8% at the start of the year to 6% by 31/10/2005. in addition, a payment of $3 million was made out of the cash of the pension scheme in relation to employees who left the scheme. the reduction in the pension scheme liability as a result of the curtainment was $4 million. the actuary has assessed that scheme is in deficit by $17 million as at 31/10/2005.The answer relevant to cash contribution said that : the cash contributions of $6 million will need to be reversed from P/L and will reduce the net obligation on the pension scheme.
would you please explain what it is? many thanks
