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Impairment Doubt

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Impairment Doubt

  • This topic has 3 replies, 2 voices, and was last updated 6 months ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • July 23, 2022 at 11:09 am #661684
    R2-D2
    Participant
    • Topics: 2
    • Replies: 1
    • ☆

    Bpp Textbook
    Activity 6)Biscuit Co has acquired another business for $4.5 million: non-current assets are valued at $4.0
    million and goodwill at $0.5 million.
    An asset with a carrying amount of $1 million is destroyed in a terrorist attack. The asset was not
    insured. The loss of the asset, without insurance. has prompted the company to assess whether
    there has been an impairment of assets in the acquired business and what the amount of any
    such loss is.
    The recoverable amount of the business (a single cash-generating unit) is measured as $3.1
    million.

    Ans:There has been an impairment loss of $1.4 million ($4.5m – $3.1m).
    The impairment loss will be recognised in profit or loss. The loss will be allocated between the
    assets in the cash-generating unit as follows.
    (1)
    A loss of $0.5 million should be allocated to goodwill in the first instance.
    (2)
    The remaining loss of $0.9 million will then be attributed directly to the uninsured asset that
    has been destroyed.
    The carrying amount of the assets will now be $3.1 million for tangible assets and goodwill will be
    fully impaired.

    Doubt:
    According to the OT notes, any impairment loss is allocated to specific assets first, so intangible assets will be $3 million after the impairment ($4 million less $1 million damaged asset= $3 million after the impairment) and goodwill will be $0.1 million ($0.5 million less $0.1 million), but the Bpp text allocated the impairment loss to goodwill first.
    Should I initially allocate the impairment loss to goodwill or to a specific asset?

    July 23, 2022 at 12:06 pm #661686
    R2-D2
    Participant
    • Topics: 2
    • Replies: 1
    • ☆

    Bpp revision kit q38)

    A cash-generating unit comprises the following assets:
    Building-700
    Plant and equipment-200
    Goodwill-90
    Current assets-20

    Following an impairment review, it was discovered that an item of plant, 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.

    Doubt (2):
    There was a specific asset impairment related to plant and equipment in both the above said BPP kit question and OT example 3 of chapter 7, but in the opentuition example, we did not allocate the remaining impairment loss (after the specific impairment and goodwill allocation) to the remaining plant and equipment, whereas in the above bpp question, we did.

    I’m unsure whether the remaining impairment loss should be allocated to the remaining plant and equipment…?

    July 24, 2022 at 6:17 pm #661749
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    R2-D2 wrote:Bpp revision kit q38)

    The remaining impairment has to be allocated as otherwise we will not have the impaired value of the CGU in the accounts.

    July 24, 2022 at 6:19 pm #661750
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    P2-D2 wrote:Bpp Textbook
    Activity 6)Biscuit Co has acquired another business for $4.5 million: non-current assets are valued at $4.0<br>million and goodwill at $0.5 million.<br>An asset with a carrying amount of $1 million is destroyed in a terrorist attack. The asset was not<br>insured. The loss of the asset, without insurance. has prompted the company to assess whether<br>there has been an impairment of assets in the acquired business and what the amount of any<br>such loss is.<br>The recoverable amount of the business (a single cash-generating unit) is measured as $3.1<br>million.

    We need to impair the specific asset first before anything else if we know that it has been impaired.

    Thanks

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