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Hi Chris,
Please can you help me out (again)?Sorry to ask such a basic Question but….why in the below e.g isn’t current assets included as impaired under “other assets” on a pro-rata basis.
A CGU comprises the following:
Building 700
Plant & Equip 200
Goodwill 90
Current assets 20
1010
one of the machines carried at usd40,000 is damaged and has to be scrapped. Recoverable amount of the cgu is estimated to be usd750,000.What will be the carrying amount of the Building when the impairment loss has been recognised?
ans:594,000
(000s)
total impt 1010-750 260
goodwill (90)
Damaged plant (40)
Balance to allocate = 130The remaining usd130,000 will be allocated as follows:
and it’s allocated pro rata as (106) for building 700 & (24) for plant of 160.
I understand how these figures are arrived at e.g : 130/860 * 700 = 106
What i thought was that because we were told that a machine was damaged in the question that that was all of the impairment that needed to be apportioned to plant (a bit like your example in the lecture)
How in the exam are we to know to apply more of a general pro rata impairment to plant & equipment again.
Any why aren’t we applying the impairment on a pro-rata basis to the current assets (usd20)Sorry i’m putting in way too much here….just wondering why current assets not being impaired here.
Thanking you in advance for any help.
Hi,
The other assets would likely be receivables and cash. The receivables are likely to be carried at their recoverable amount already and have been impair as a financial instrument, and cash cannot be impaired.
In my example I’ve assumed that the remaining, undamaged asset is maintained sufficiently well enough that it is not impaired.
Exam questions would have to be clear about whether it is or isn’t impaired, so don’t worry about it too much as you clearly understand the fundamental calculations.
Thanks
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