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impairment

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › impairment

  • This topic has 3 replies, 2 voices, and was last updated 8 years ago by MikeLittle.
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  • November 9, 2016 at 5:16 pm #348237
    Malaree
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    Extracts from trial balance at 31 March, 2010
    Leasehold (15 years) property at cost 45,000
    Plant and equipment at cost 67,500
    Accum depreciation 1.04.09 property 6,000
    Accum depreciation 1.04.09 plant 23,500
    Prepare the workings for the non-current assets’ depreciation, amortisation and impairment for inclusion within the 2010 financial
    statements as appropriate
    In order to fund a new project, on 1 October 2009 the company decided to sell its leasehold property. From that date it commenced
    a short-term rental of an equivalent property. The leasehold property is being marketed by a property agent at a price of $40 million,
    which was considered a reasonably achievable price at that date. The expected costs to sell have been agreed at $500,000. Recent market
    transactions suggest that actual selling prices achieved for this type of property in the current market conditions are 15% less than the
    value at which they are marketed. At 31 March 2010 the property had not been sold.
    Plant and equipment is depreciated at 15% per annum using the reducing balance method.
    No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31 March 2010. Depreciation, amortisation
    and impairment charges are all charged to cost of sales.

    November 10, 2016 at 1:29 pm #348329
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    And which bit are you stuck with? Post your workings and I’ll try to identify where you are going wrong

    November 10, 2016 at 4:23 pm #348347
    Malaree
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    for leasehold property

    to calculate the impairment loss i should take higher of fair value $39500 and value in use

    value in use is it $34000 (40m – (40m* 15%))?

    and depreciation how will it be calculated?

    November 10, 2016 at 7:14 pm #348379
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    “value in use is it $34000 (40m – (40m* 15%))?”

    No, the recoverable amount is the higher of value in use (which we have no information for) and net selling price

    And net selling price is 85% x $40m = $34m

    Amortisation for the period 1 April – 30 September is 6 months at the annual rate of $3,000 so carrying value at the date of re-classification to Asset Held for Sale would be $37.5m ($45m – $6m brought forward + $1.5m for 6 months to 1 October, 2009)

    $37.5 carrying value at 1 October, 2009 is then $39.5m ($40m – $.5m) so the $2m surplus is credited to Revaluation reserve

    On 30 September, 2010 there is a re-assessment of the realisable value and new evidence suggests that the realistic sales value should be $34m

    Assuming that estimated costs to sell are still $.5m that gives a revised net selling price of $33.5m and that represents an impairment loss of $6m

    That amount should be charged as an expense through Statement of Profit or Loss

    Does that get anywhere near the printed solution?

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