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Hello,
I was wondering if anyone could help me figure out why in Traveler (Dec 11), when impairment of goodwill is tested (it is positive for impairment), the NET ASSETS (goodwill, share capital, retained earnings, OCE and land revaluation surplus) are used to compare the carrying amount against the recoverable amount, but in Minny (Dec 12) TOTAL ASSETS are used (goodwill, PPE, investments in subsidiaries, intangible assets, current assets and revaluation surplus).
Thank you for your time, and if you require any further information, please do not hesitate to ask.
Regards
Is this not simply an adaptation of the “fundamental accounting equation” – Net assets = shareholders’ funds?
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Hello Mike,
I thought the same thing, but I was very confused, when it did not work out.
The net assets for the impairment test for Data (subsidiary) (Dec 11) = 1079 and the total assets are = 1601
In Dec 12 the net assets for the subsidiary Heeny are = 364 and the total assets are 595.in the case of Data the net assets are used, where in the case of Heeny total assets are used, but they are different figures in their own rights. I hope this is a bit clearer in describing my difficulty.
Hope you are well! 🙂
Warmest regards
Hi
I answered this question yesterday but for some reason my answers do not appear to be staying up!
I’ve checked the printed solutions for both Minny and for Traveler.
In the question Traveler, in the impairment calculations for both Captive and for Data working 3, I see the layout of “Goodwill + notional goodwill for the nci (when applicable) + identifiable net assets + fair value adjustments (where applicable)” The aggregate of those amounts is compared with the recoverable amount as given in the question and the result shows whether or not we need to impair goodwill.
However, when I look at the printed solution for Minny in working 2 ……. it is exactly the same! For both Bower and for Heeny, the aggregate of goodwill together with the identifiable assets and the fair value adjustments are compared with the recoverable amounts given in the question.
I’m not sure where you have identified an inconsistency!
OK?
Dear Mike,
Minny – Dec. 12
When I calculate the impairment loss part on Minny’s two subsidiaries B and H from above Q, I still have the same question: what should be used to compare with recoverable amount? Total Assets or Net Asset? The printed solution given in this paper is inconsistent with the way in other papers. In other papers’ answer ( for example, Trailer June 13, the calculation of Park’s impairment of goodwill, identifiable net assets 2,255 are used ), we are taught to use Net assets+ GW to compare with recoverable amount, but here it uses total assets (net assets 968+GW190+Total Liabilities 251= 1409). I notice the last sentence of given info. on #3 says: the recoverable amount has been determined without consideration of liabilities which all relate to the financing of operations. What does it mean? Does it remind us of using total assets to compare rather than net assets?Thanks,
Qin
Sorry, I can’t re-edit my question, I have more Qs in Minny:
1) gain on F.V. of associate – Puttin: $21m-$19m=$3m, this $3m transferred from OCE to R.E., why moving? can’t it stay in OCE?
2) the impairment loss on disposal group $34m, why recognized in R.E. ,not in OCE?
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Hi,
May I add a question about Traveler.
Per (i) “the excess in FV is due to non-depreciable land.”
What does the “excess” refer to?
Does it refer to 935-(600+299+26)=10?
Thanks!
Qin, the last sentence in point 3 of the question “the recoverable amount has been determined without consideration of liabilities which all relate to the financing of operations” is relevant as also is the sentence before it “The directors of Minny felt that any impairment of assets was due to the poor performance of the intangible assets.”
The combination of those two points is pushing you to compare the recoverable amount of THE ASSETS (without consideration of the liabilities) with the carrying value of just the assets without any deduction in respect of liabilities
Qin 2
The $21 – $19 = $3 doesn’t seem correct! In fact $21 – $18 = $3 is treated as a realised gain on the deemed disposal of the initial holding and is correctly transferred within Statement of Changes in Equity
The loss on the disposal group is recognised this year through retained earnings – the chance of achieving the disposal is significant and it would therefore be appropriate to deal with the loss in the same way as accounting for a provision for doubtful debts. It is recognised in the year where the loss is foreseen
Does that answer it for you?
C0712
When a question refers to an “excess of fair value over carrying value” or uses equivalent wording, that is merely indicating that fair value is greater than the carrying value.
Your calculation has correctly reflected the message in the question
Thanks, very clearly answer, understand the recoverable amount Q now 🙂
For 1) and 2) Qs (sorry for my poor calculation), any gain or loss from fair value change of investment or impairment loss of group disposal should be immediately recognized in P&L of current period, can’t stay in OCE?
To further express my question: Referring to IFRS9 – “other comprehensive income option”, it says if an equity investment is not held for trading, an entity can make an irrevocable election at initial recognition to measure it at fair value through other comprehensive income (FVTOCI) with only dividend income recognized in P&L.”
So, based upon this statement from IFRS9 and point 4 from our question paper saying The investment was accounted for under IFRS 9 financial instruments and was designated as at FVTOCI, I just think Puttin is not held for trading.
So gain on FV change $21m-$18m=$3m should still stay in OCE coz only dividend allowed to be recognized in P&L.
Hope you could help on that.
Thanks,
QinSurely, they’re recycling the 3m from OCE to retained earnings following the increase in the investment in Puttin and the dividend shouldn’t have gone to OCE anyway – it should have been included in P and L
Hi Mike,
Clear now on Minny – Dec. 2012, Asso-Puttin – gain on F.V. increase to RE and div. to P&L
Just curious on IFRS 9, it says if an equity investment is not held for trading, so here for Minny’s asso Puttin is not held for trading? What’s the definition for trading or not for trading in IFRS ?
Thanks,
QinThat’s one you can look up for yourself – but given that there is a further acquisition it would seem that the original investment was not held with the intention of a quick sale to make a profit
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