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Dear Sir,
could you explain how to we get 10 ma cash generating unit comprising a factory , plant and equipment etc and associated purchased goodwill becomes impaired because the product it makes is overtaken by a tecnologically more advanced model produced by competitor . the recoverable amount of cash generating unit falls to 60m , resulting in an impairement loss of 80m allocated as follows:
carrying amt before impairment
gw 40mpatent (no
mkt value) 20mtnca (mkt value60m) 80 m
total 140
carrying amt after impairment
gw $0
patent $ 0
tnca $ 60total 60m
after 3years the entity males a technological breakthrough of its own and the recoverable amount of the cash generating unit increases to 90m . the carrying amt of tanglble non current asset had impairment not ocuured would have been 70m
calculate the reversal of impairment loss ? ans: 10 m
thanks in advance sir
Patent has been written off and you don’t say whether the patent is connected in any way with the recent “technological breakthrough” so I’m not going to reverse the patent value – once it’s gone, it’s gone!
You cannot reverse the goodwill because, if there is any goodwill now in the company, this has been generated since impairment and is therefore internally generated and therefore not to be recognised
So, all we can do is reverse the impairment on the TNCA but not to a value greater than what the TNCA would have been if we hadn’t impaired it.
According to your figures, we can impair it back to $70 from its current carrying value of $60 and that’s where the $10 comes from
Just one problem! You say that TNCA would have been $70 if we hadn’t impaired. So, you’re telling me that we are depreciating this TNCA by $10 in a three year period? A 24 year remaining expected useful life as at date of impairment? Dare I suggest that this is improbable?
OK?
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