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At 30 September 20X9, Sandown Co’s trial balance showed a brand at cost of $30 million
and accumulated amortisation on that brand brought forward at 1 October 20X8 of $9
million. Amortisation is based on a 10-year useful life. An impairment review on 1 April 20X9
concluded that the brand had a value in use of $12 million and a remaining useful life of
three years. However, on the same date, Sandown Co received an offer to purchase the
brand for $16 million and costs of $1m would be incurred in legal fees associated with the
sale. What should be the carrying amount of the brand in the statement of financial position of
Sandown Co as at 30 September 20X9?Well… this question has given me a bit of a crunch now. I understand that we have to look for the greater of value in use and Fairvalue less costs to sell. which is 15m (16 000 – 1000). Which is obviously greater that our Value in use of 12 000.
The depreciation bit is where it gets kind tricky for me. Kindly offer an elaborate explanation as this would help me a lot.
Hi,
You need to amortised the cost for another six months as the impairment review took place part way through the year. So, there is an additional 1.5m to reduce the carrying value by as we have a cost of 30m and a 10 year life, so 3m p.a.
The CV at the review date is then 19.5 (30-9-1.5l meaning that the intangi le.is impaired down to the 15,000.
This value is then amortised over the 3 year remaining life for the last six months the of the year. You should then get your answer to a tough question.
Thanks
thank you soo much very well explained… I have understood. Just one last question though. Why isn’t the amortization for the revised useful life of 3 years applied to the carrying value of 19.5m? Why was it applied to the Recoverable Amount?
Glad we’ve helper you out. Sorry to say we can’t do the same for your football club 😉
The reason why we apply the amortisation to the 15,000 and not the 19,500 is because we will have impaired the asset down to the 15,000 and so this is the updated/new carrying value to which we would then apply the amortisation to.
Thanks
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