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Hi
Please help me on this question on CGU about pro rata allocationsCarrying value prior to impairment
Goodwill – 20
Technology – 5
Brands -10
Land- 50
Building -30
Other net assets – 40
Recoverable amounts -85
Company suffer drop in income due to failure in technology
The technology is worthless
The book value of net asset is a reasonable representation of its NRV
Calculate impairmentI assume from the penultimate point that the “other net assets are not included within the recoverable amount of 85. Am I correct? Recoverable amount is 85 therefore relates to the assets that you have specified and they are at the moment carried at 115 leaving us with 30 to impair
Impair the technology by 5 leaving a further 25 to impair
Impair goodwill in full leaving a further 5 impairment
Spread that remaining 5 over the brand, land and buildings on a pro-rata basis
If my assumption about the “other net assets is incorrect” then the total impairment is 70
In that case, impair technology and goodwill as above leaving 55 more to go
But the other net assets recoverable amounts is equal to their carrying value, so we can’t impair them – we never impair assets to a value lower than their recoverable amounts
The remaining 55 must therefore be allocated to the brand, land and buildings in the proportion of 10:50:30
Ok?
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