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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)$548000Hi 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.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 impairThe 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?
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.Self-study – they’re not that difficult and I’m always here to answer your questions
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 $ 133,333I did same calculation as you explained previously, answer =$150,000
Whereas correct answer is 154,545Working
Carrying amount – recoverable amount
$300000 – $200000= $100000impairement loss – goodwill
$100000 – $50000= $50000$300000-$50000-$20000-$30000=$200000
PPE $200000*$50000/$200000= $50000
PPE $200000-$50000= $150000
Sir
Can you please explain why my answer is wrong.
The question which I have written aboveI 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 =
$45,455PPE 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!
C.V – A.G – N.C.A =
$300,000- $50,000- $20,000 =$220,000CV = Carrying value
AG = Allocated Goodwill
NCA = Non Current AssetsI 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
‘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!
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?
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
excuse me sir, can you explain more about this line (Current assets 20 with $130,000 more to impair) in first example,please?
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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