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Hi, I have a question regarding example 3 of chapter 7 Open Tuition kit about CGU impairment. I had this question when I tried to apply the same approach to BPP revision kit ex 62.
Both examples are similar but with opposite approaches and answers. I am not going to cite example 3 here. BPP exercise is cited below.
So, first example 3 of OT. The lecturer clearly states that because question says that fire destroyed 1.2 million of plant and equipment, P&E will be not subject to any further impairment. That is why all remaining impairment goes to building. So far so good. But then comes similar BPP revision kit question 62.
BPP ex. 62
A cash-generating unit comprises the following assets:
$’000
Building 700
Plant and equipment 200
Goodwill 90
Current assets 20
1,010
One of the machines, carried at $40,000, is damaged and will have to be scrapped. The recoverable amount of the cash-generating unit is estimated at $750,000.
What will be the carrying amount of the building when the impairment loss has been recognised?
(to the nearest $’000)What happens here, p&e is subject to an impairment of 40000. If I apply the same logic explained in OT, I should not find pro rata share of impairment loss and allocate all remaining loss to building.
But answer does not say so. Even if p&e is impaired initially, it continues to be impaired further. This answer is also supported by one of your lecturers in forum https://opentuition.com/topic/chapter-14-impairment-of-assets-2/So, my question is
Where is the catch?
Why further impairment is not done in OT question whereas BPP question continues to impair p&e further?Hi,
It is all very subjective and all depends on how you view the remaining assets in the category that has already suffered an impairment. If you believe that this is the only one that has been impaired then none of the remaining impairment will be allocated to this category, as has been done.
If you believe that the other assets in the category have been impaired then the remainder of the impairment can be allocated to the remaining assets. So it all depends on how you see the other assets and what they specifically are and how they operate.
Thanks
Thanks for the answer.
It may be subjective in real life when you come to the site and decide whether to impair further or not.
In my view, it should be clearly stated in the question. Otherwise, a student may follow your recommendation and not get any mark for the answer which the student thought to have answered correctly.
Even if we assume that there is place for subjectivity, there is no hint in the lecture about subjectivity. The tutor states that it should be so, period.
So, I would ask either to change the formulation of the mentioned OT question (which is easier), or revise the lecture to add point about subjectivity.
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