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Dimension owned a 100% subsidiary, Avanza, which is treated as a cash generating unit. On 31 March 2015, there was an industrial accident (a gas explosion) that caused damage to some of Avanza’s plant. The assets of Avanza immediately before the accident were:
S’000
Goodwill 1,800
Patent 1,200
Factory building 4,000
Plant 3,500
Receivables and cash 1,500
Total 12,000As a result of the accident, the recoverable amount of Avanza is $6.7 million.
The explosion destroyed (to the point of no further use) an item of plant that had a carrying amount of $500,000.
Avanza has an open offer from a competitor of $1 million for its patent. The receivables and cash are already stated at their fair values less costs to sell (net realisable values).
Required:
Calculate the carrying amounts of the above asset at 31 March 2015 after applying any impairment losses.
Total impairment is $5.3 million (12 – 6.7).
First to obviously impaired assets $0.5 million to plant and $0.2 million to patent. (that’s $0.7 million already impaired. ) The plant is at 3 million now and can be further impaired if required (see below)
Then to goodwill $1.8 million (that’s $2.5 million already impaired out of $5.3 million )
The remaining($ 2.8M) will be on pro rata basis. Remember
1) Receivables and cash will not be impaired
2) Patent cannot be further impairedSo for Factory building it will be $2.8M x 4000/(4000+3000)= $1.6M
and for Plant it will be $2.8M x 3000/(4000+3000)= $1.2MTherefore the CV will be:
Goodwill 0
Patent $1M
Factory Building $2.4M (4-1.6)
Plant $1.8M (3.5- 0.5 – 1.2)
Cash and Rec $1.5M
Total $6.7M😉
i did not understand how the new carrying amount for Receivables and Cash is $1000 and not $1500
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