- April 19, 2020 at 7:59 pm
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 )
Patent (with no market value) 20
Tangible long-term assets 80
Carrying amounts after impairment ( $m )
Patent (with no market value) 0
Tangible long-term assets 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.
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 modelJuly 9, 2020 at 5:35 pm
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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