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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 430000Following 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) $261000MY WORKING
Carrying amount -recoverable amount
$5180000 – $4000000 = $1180000Impairement $1180000 -goodwill 700000= $ $480000
Carrying amount $518000
Less: goodwill ($700000)
Less: other net assets ($430000)
—————-
$4050000Plant $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 correctly5,180 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
I am sorry
By mistake I wrote (D), yes you are correct answer is (C).
Thank you sirUnaiza, 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
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
————
$35MFollowing 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) $5MMy 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
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 2A total of 24
Is that getting any clearer?
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