Chapter 14 impairment of assets — OpenTuition Forums

Uunaiza9y ago

A division of a company has the following balances in it's financial statements: Goodwill 700000 Plant 950000 Property 2300000 Intangible 800000 Other net assets 430000 Following a period of losses the recoverable amount of the division is deemed to be $4 m. A recent valuation of the building showed that the building has a market value of $2.5 m. The other net assets are at their recoverable amount. The company uses the cost model for valuing property plant equipment. Q24) to the nearest, what is the balance on property following the impairment review? A) $862000 B) $837000 C) $689000 D) $261000 MY WORKING Carrying amount -recoverable amount $5180000 - $4000000 = $1180000 Impairement $1180000 -goodwill 700000= $ $480000 Carrying amount $518000 Less: goodwill ($700000) Less: other net assets ($430000) ---------------- $4050000 Plant $480000*$950000/$4050000 = $112593 Plant = $950000-- $112593 = $837407 this can be round off as $837000 my answer is B) But at the back of the kit the answer is (D) Why my answer is wrong though I have applied the formula correctly

MikeLittleTutor9y ago#1

5,180 correct 4,000 correct 1,180 correct ( 700) correct 480 correct (remaining amount to impair across plant and intangibles (never reduce assets below their recoverable amount, so property will not be impaired)) Carrying value of plant and intangibles is 950 + 800 = 1,750 Plant impairment is therefore 480 * 950 / 1,750 = 261 Before impairment plant was 950 Impairment was 261 So plant after impairment is 689 I believe that the answer is C! Surely the solution shows you how their answer is arrived at! Check it out and tell me where I've gone wrong please

Uunaiza9y ago#2

I am sorry By mistake I wrote (D), yes you are correct answer is (C). Thank you sir

MikeLittleTutor9y ago#3

Unaiza, you've done this to me before! I spent ages trying to find where I had gone wrong and trying to reach the answer D In future, please make a big effort to type the details correctly Thanks

Uunaiza9y ago#4

Oh I am really sorry sir Next time will surely keep in mind.

Uunaiza9y ago#5

A business which comprises a single cash-generating unit has the following assets. Goodwill $3M Patent $5M Property $10M Plant and equipment $15M Net current assets $2M ------------ $35M Following an impairment review it is estimated that the value of the patent is $2M and the recoverable amount of the business is $24M. At what amount should the property be measured following the impairment review? A) $8M B) $10M C) $7M D) $5M My question is this is similar question as above in which recoverable amount of net asset was already taken out and property's (building) market value was already given. Similarly, in this question patent's impairment review has already been taken out then why we subtracted patent's 2M from impairment loss of $11M

MikeLittleTutor9y ago#6

Need to impair by 11 First 3 comes off the patent leaving 8 more to impair Then 3 comes off the goodwill leaving 5 more to impair Nothing comes off net current assets so still 5 more to impair, allocated on a pro-rata basis over 10 property and 15 PPE So 10/25 x 5 is allocated against property and 15/25 x 5 is allocated against PPE That's 2 to impair the property and 3 to impair the PPE and that leaves us with .... Goodwill zero Patent 5 - 3 = 2 Property 10 - 2 = 8 Plant and equipment 15 - 3 = 12 Net current assets 2 A total of 24 Is that getting any clearer?

Uunaiza9y ago#7

Yup it's cleared thank you

MikeLittleTutor9y ago#8

You're welcome

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