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impairment reversal

Forums › ACCA Forums › ACCA SBR Strategic Business Reporting Forums › impairment reversal

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by Kalkulos.
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  • April 19, 2020 at 7:59 pm #568785
    bananabuddy
    Member
    • Topics: 14
    • Replies: 13
    • ☆

    found this question in the BPP study text. does anyone know why there no impairment reversal on the patent? what do they mean by “more advanced model”?

    A 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 technologically more advanced model produced by a competitor. The recoverable amount of the cash generating unit falls to $60m, resulting in an impairment loss of $80m, allocated as follows:

    Carrying amounts before impairment ( $m )
    Goodwill 40
    Patent (with no market value) 20
    Tangible long-term assets 80
    Total 140

    Carrying amounts after impairment ( $m )
    Goodwill 0
    Patent (with no market value) 0
    Tangible long-term assets 60
    Total 60

    After three years, the entity makes a technological breakthrough of its own, and the recoverable amount of the cash generating unit increases to $90m. The carrying amount of the tangible long-term assets had the impairment not occurred would have been $70m. Required Calculate the reversal of the impairment loss.

    Answer

    The reversal of the impairment loss is recognised to the extent that it increases the carrying amount of the tangible non-current assets to what it would have been had the impairment not taken place, ie a reversal of the impairment loss of $10m is recognised and the tangible non-current assets written back to $70m. Reversal of the impairment is not recognised in relation to the goodwill and patent because the effect of the external event that caused the original impairment has not reversed – the original product is still overtaken by a more advanced model

    July 9, 2020 at 5:35 pm #576445
    Kalkulos
    Member
    • Topics: 0
    • Replies: 2
    • ☆

    Solution
    Calculation of impairment loss and reversal

    Assets CA before imp Imp.Loss CA aft Imp Reversal CA aft Rev
    $m $m $ $ $

    Goodwill 40 40 0
    Patent 20 20 0
    NCA 80 20 60 10 70
    140 80 60 10 70
    According to the standard only $10m will be reversed to take the asset should be if the impairment had not occured(80-10)

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