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Dear All,
I have a small problem with a question on page 164 of my BPP study text: There is Goodwill, as a consideration has been paid of $12 for a 75% share of a company with equity of $8 and retained earnings of $4.4. N.C.I. is $4.
However, the question states that for PPE the following applies:
Gross replacement cost: $28.4
Net replacement cost (gross replacement cost less depreciation): $16.6
Economic Value: $18
Net realisable value: $8.The solution provided states that PPE should be revalued to $16.6. I wonder why not $18, as at least under IAS 36 (Impairment), one impairs down to the higher of Fair Value / Value in Use. Is it because under IAS 16 PPE, if there is no fair value i.e. market value, depreciated replacement cost can be used for a revaluation? Thanks for your kind advice!
Yours truly, Kangmo (???
I think the question you should ask yourself in this situation is “How much would it cost to buy an equivalent asset of similar age and in similar condition?”
The answer here is 16.6 and that’s the figure we need to include as the asset’s fair value (IFRS13 I seem to remember)
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