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Chapter 14 impairment of assets

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Chapter 14 impairment of assets

  • This topic has 20 replies, 4 voices, and was last updated 1 year ago by nekdason.
Viewing 21 posts - 1 through 21 (of 21 total)
  • Author
    Posts
  • August 23, 2016 at 11:44 am #334714
    unaiza
    Participant
    • Topics: 37
    • Replies: 97
    • ☆☆

    Hi sir
    Can you please explain how to calculate pro rate as I am not getting it.

    A cash generating unit comprises the following assets:

    $ 000
    Building 700
    Plant and equipment 200
    Goodwill 90
    Current assets 20
    ____
    1010
    One of the machine carried at $40000 is damaged and will have to be scrapped. The recoverable amount of the cash generating unit is estimated at $ 750000.

    What will be the carrying amount of the building when the impairement loss has been recognized?
    A)$597000
    B)$577000
    C)$594000
    D)$548000

    August 23, 2016 at 11:47 am #334715
    unaiza
    Participant
    • Topics: 37
    • Replies: 97
    • ☆☆

    Hi sir
    Why there is no lecture video for
    chapter 14 IAS 36 impairment of assets as I am confused with the calculation.
    What should I do I really need help as I am studying only through books, open tuition lectures and notes.

    August 23, 2016 at 1:08 pm #334737
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    OK

    The machine carried at $40,000 is to be scrapped, so PPE comes down to $160,000

    That leaves a carrying value for the unit of $1,010,000 – $40,000 = $970,000 and we’re told that the unit has a recoverable amount of $750,000

    So we need to impair by a further $220,000

    The first step is to write off the goodwill in full so that’s another $90,000 gone leaving $130,000 more to impair

    We’re now at this stage:

    Building 700
    Plant and equipment 160 (200 – 40)
    Goodwill – (90 – 90)
    Current assets 20 with $130,000 more to impair

    The current assets are already accounted for as the lower of cost and net realisable value so no more can be deducted from the current assets

    So building and ppe are faced with an impairment of $130,000 on a pro-rata basis

    130,000 x 700/860 = 106 (actually $105,814)

    and

    130,000 x 160/860 = 24 (actually $24,186)

    The building, pre-impairment, had a carrying value of $700,000 and after impairment the building is carried at $594 (actually $594,186)

    So answer ‘C’

    OK now?

    August 23, 2016 at 5:53 pm #334770
    unaiza
    Participant
    • Topics: 37
    • Replies: 97
    • ☆☆

    Thank you so much sir

    August 23, 2016 at 5:55 pm #334771
    unaiza
    Participant
    • Topics: 37
    • Replies: 97
    • ☆☆

    But sir I have a question
    Why there is no lecture video for chapter 14 and chapter 20.
    How should I deal with these two chapters.

    August 23, 2016 at 6:30 pm #334775
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    Self-study – they’re not that difficult and I’m always here to answer your questions

    August 23, 2016 at 9:40 pm #334800
    unaiza
    Participant
    • Topics: 37
    • Replies: 97
    • ☆☆

    Ok
    thanks a million sir

    August 24, 2016 at 7:55 am #334862
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    You’re welcome

    August 24, 2016 at 10:55 am #334886
    unaiza
    Participant
    • Topics: 37
    • Replies: 97
    • ☆☆

    The net assets of fyngle a cash generating unit (cgu ) are :

    Property plant n equipment 200000
    Allocated goodwill 50000
    Product patent 20000
    Net current assets(net 30000
    Realisable value)

    As a result of adverse publicity fyngle has a recoverable amount of only $200000
    What would be the value of fyngle’s property plant and equipment after the allocation of the impairment loss?
    A $ 154,545
    B $ 170,000
    C $ 160,000
    D $ 133,333

    I did same calculation as you explained previously, answer =$150,000
    Whereas correct answer is 154,545

    Working
    Carrying amount – recoverable amount
    $300000 – $200000= $100000

    impairement loss – goodwill
    $100000 – $50000= $50000

    $300000-$50000-$20000-$30000=$200000

    PPE $200000*$50000/$200000= $50000

    PPE $200000-$50000= $150000

    August 24, 2016 at 4:43 pm #334937
    unaiza
    Participant
    • Topics: 37
    • Replies: 97
    • ☆☆

    Sir
    Can you please explain why my answer is wrong.
    The question which I have written above

    August 24, 2016 at 5:11 pm #334950
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    I don’t understand this line:

    ‘$300000-$50000-$20000-$30000=$200000′

    After you have written off / impaired the goodwill in full, there is still a further $50,000 to impair and this amount is allocated between PPE ($200,000) and product patent ($20,000)

    So, for the PPE their share of the remaining impairment is $200,000/$220,000 x $50,000 =
    $45,455

    PPE after this impairment is now $200,000 – $45,455 = $154,545

    You need to check how you have arrived at this ”$300000-$50000-$20000-$30000=$200000’ because I can’t follow it!

    August 24, 2016 at 6:25 pm #334971
    unaiza
    Participant
    • Topics: 37
    • Replies: 97
    • ☆☆

    C.V – A.G – N.C.A =
    $300,000- $50,000- $20,000 =$220,000

    CV = Carrying value
    AG = Allocated Goodwill
    NCA = Non Current Assets

    I want to ask why we didn’t subtract product patent from carrying value though we only have to find property plant and equipment according to the answer

    August 24, 2016 at 7:08 pm #334975
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    ‘C.V – A.G – N.C.A =
    $300,000- $50,000- $20,000 =$220,000’

    This is NOT what you wrote!

    THIS is what you wrote!

    ‘$300000-$50000-$20000-$30000=$200000?

    Furthermore, this does not add up correctly!

    ”C.V – A.G – N.C.A = $300,000- $50,000- $20,000 =$220,000”

    This was my response to your email …

    … ‘After you have written off / impaired the goodwill in full, there is still a further $50,000 to impair and this amount is allocated between PPE ($200,000) and product patent ($20,000)

    So, for the PPE their share of the remaining impairment is $200,000/$220,000 x $50,000 = ‘$45,455

    If I had continued I would have found the product patent value after allocated impairment …

    … $20,000/$220,000 x $20,000 = $18,182

    But we weren’t asked for this!

    August 24, 2016 at 7:24 pm #334983
    unaiza
    Participant
    • Topics: 37
    • Replies: 97
    • ☆☆

    Now I got it
    Thank you sir

    August 24, 2016 at 7:39 pm #334988
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    You’re welcome

    February 4, 2022 at 5:59 am #648072
    Alijavad2003
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Good morning,sir. Why did you substract 90 from goodwill?IS there any reason to do that? Should we always divide impairment for PPE on a pro-rata basis?

    February 9, 2022 at 8:45 pm #648388
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    We always impair the goodwill first in a CGU, hence why we have subtracted the 90 from the goodwill, being its full value.

    The remaining impairment is then allocated pro-rata, which is usually done in the main to PPE but could technically be done across other assets in the CGU.

    Thanks

    August 7, 2023 at 8:08 pm #689553
    1accountant
    Participant
    • Topics: 3
    • Replies: 8
    • ☆

    where did the 860 come from ? this has me confused

    August 11, 2023 at 5:33 pm #689766
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Which question are you referring to in the class notes?

    March 29, 2024 at 1:44 am #703471
    nekdason
    Participant
    • Topics: 0
    • Replies: 2
    • ☆

    excuse me sir, can you explain more about this line (Current assets 20 with $130,000 more to impair) in first example,please?

    March 29, 2024 at 1:55 am #703472
    nekdason
    Participant
    • Topics: 0
    • Replies: 2
    • ☆

    and can you explain more about this part sir where is 860 come from?

    The current assets are already accounted for as the lower of cost and net realisable value so no more can be deducted from the current assets

    So building and ppe are faced with an impairment of $130,000 on a pro-rata basis

    130,000 x 700/860 = 106 (actually $105,814)

    and

    130,000 x 160/860 = 24 (actually $24,186)

    The building, pre-impairment, had a carrying value of $700,000 and after impairment the building is carried at $594 (actually $594,186)

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