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Hi Mike!
-A business comprises of a single CGU and has the following assets:
Goodwill $3M
Patent $5M
Property $10
Plant and equipment $15
Net current assets $2MFollowing an impairment review, it is estimated that the value of the patent is $2M and the recoverable amount of the business is $24M.
At what amount should the property be measured following the impairment review?
-The answer is $8M
-Could you please help me to get the answer?Thanks.
Impairment of $35 – $24 = $11
First step, reduce goodwill by the full amount of $3 leaving $8 more to go
Next reduce the patent by $3 to reduce it to $2 and that leaves $5 more to go
Cannot decrease NCA because they are already at the lower of cost and net realisable value
So we’re left with property and plant to reduce proportionately in the ratio of 10:15
The property element is therefore 10/25 x $5 = $2 impairment allocated to property and therefore $3 impairment allocated to plant
The question asks for the value of the property after impairment … it’s $8
OK now?
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