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Could you please explain the following:
If valuation of the building indicated no impairment , can we conclude that the Property should be valued at CV for CGU?I could not find in the text the reference to this.I understand that it must not be lower than Realisable value, but why valuation of Building refers to Property, why not to leave Plant and Intangibles at CV?
Thank you.Hi,
I’m sorry, but I don’t fully understand your point. Can you please try and explain it a bit further?
Thanks
Hi,
In Kaplan kit they say:A division of a company has the following balances in its financial statements:
Goodwill $700,000
Plant $950,000
Property $2,300,000
Intangibles $800,000
Other net assets $430,000
Following a period of losses, the recoverable amount of the division is deemed to be
$4 million. A recent valuation of the building showed that the building has a market value of
$2.5 million. The other net assets are at their recoverable amount. The company uses the
cost model for valuing property, plant and equipment.Question:To the nearest thousand, what is the balance on property following the impairment
review?In the answer they explain as following:valuation of 2.5 mln indicates that there is no impairment.Answer is 2.3 mln.
My question:
I understand that it must not be lower than Realisable value, but is there any rule that valuation of building gives us reference to property only? What about plant, for ex?
Thank you.Hi,
Thanks for the additional information. The division (CGU) is impaired as its carrying value is greater than the recoverable amount of $4 million.
In allocating the impairment loss, it goes against specific assets that are impaired and goodwill before being allocated to the remaining assets on a pro-rata basis.
On allocating the impairment on a pro-rata basis it wouldn’t be allocated to the property as we’re given specific information in the question that states in a recent valuation, its carrying value is below its market value, so there is no impairment to this asset. The impairment is then allocated to the intangibles, plant and other net assets.
Hope that clears it up for you.
Thanks
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