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Sir we have to allocate the impairment loss among CGU’s and the impairment loss is $1.3m.
First of all we will deduct the value of goodwill and then we will distribute among remaining units.Question stated is like this:
Building $900
Plant and equip $300
Inventory $70
Other current assets $130
Goodwill $40Now after deducting goodwill we have remaining impairment of $1260 (1300-40)
please can you solve this furthur.I imagine (without complete information) that you’re looking at 945 against the building and 315 against plant and equipment.
But, unless you’ve given me wrong figures, that allocation cannot work. In fact, no allocation can work given that buildings plus plant and equipment only aggregate 1,200 so it’s a bit impossible to allocate 1,260!
values are correct. impairment was 1300 and other values for CGU’s are also same it is a question from BPP.
The asset values that you have given me (note, asset values, not net asset values) aggregate $1.44 million
It cannot possibly be the case that the impairment loss to be written off is $1.3 million
There is something that you are not telling me!
What does the BPP answer say?
I am quoting the full question here now
Plethora plc owns a retail business which has suffered badly during the recession. Plethora plc treats this business as a separate cash generating unit.
The carrying amounts of the assets comprising the retail business are:Building $900
P&E $300
Inventory $70
Other current assets $130
Goodwill $40An impairment review has been carried pout as at 31st Dec 20X9 and the recoverable amount of the CGU is estimated at $1.3m
Required:
Restate the carrying amounts of the assets of the retail business after accounting for the result of the impairment reviewLOOK AT YOUR FIRST POST!!!!!!
LOOK AT YOUR SECOND POST !!!!
NOW COMPARE THEM WITH THIS MOST RECENT POST!!!!
And there’s not even a hint at an apology? Even though I TOLD you that your figures were wrong!
Buildings should be impaired down to $825, plant and equipment come down to $275, inventory stays at $70 and other current assets stay at $130
Please, sir, how did you impair the building from 900 to 825 and P&E from 300 to 275? How is the impairment being done? Get me cleared please.
Before impairment the assets are carried at $1,440
After impairment, the assets will be carried at $1,300
So we need to impair by $140
The goodwill of $40 will be eliminated first, so that now leaves just $100 to impair
No asset shall be reduced below its recoverable amount and, since current assets are themselves shown at the lower of cost and net realisable value, no impairment will be allocated to those current assets
So, we have $100 to impair against Buildings and Plant and Equipment and we do so in the proportion of their carrying values
Before impairment the ratio is 900:300 or 3:1
So 3/4 of $100 is allocated to the Buildings and 1/4 is allocated to the plant and Equipment
And that leaves carrying values of $825 Buildings and $275 Plant and Equipment
OK?
BIG difference between “impaired by” and “impaired to”!
You need to be a LOT more careful in the exam – a mistake like that can mean the difference between 48% and 50%
Oh dear!
You have as asset with a carrying value of $200 and you write it down to $1
What is now the carrying value?
NO!!!!!
If you have an asset with a carrying value of $200 and you write it down / impair it / depreciate it TO $1, then its new carrying value is $1
If you have an asset with a carrying value of $200 and you write it down / impair it / depreciate it BY $1, then its new carrying value is $199
And in neither situation is your answer of $200 correct!
There is MCQ on impairment here:
A cash generating unit comprises the following assets:
Building $700
P&E $200
Goodwill $90
Current assets$20
Total $1010
One of the machines, carried at $40,000 is damaged and will have to be scraped. The recoverable amount of the cash generating units is estimated at $ 750,00.
What will be the carrying amount of the building when the impairment loss has been recognised? (to the nearest$’000).As you have done above following that I am solving this too.
1010-750=260
260-90-40=130
Now prorating this $130 among the remaining
700+20+160(after deducting the damaged machine 200-40)=880
700/880*130= 103
700-103 597Have I done this correctly. Or I have still done any mistake?
“As you have done above following that I am solving this too.
1010-750=260
260-90-40=130
Now prorating this $130 among the remaining
700+20+160(after deducting the damaged machine 200-40)=880
700/880*130= 103
700-103 597Have I done this correctly. Or I have still done any mistake?”
Still made a mistake 🙁
You are most unlikely to allocate any impairment against current assets. They should already be valued at the lower of cost and net realisable value and we never reduce an asset below its recoverable amount
So the allocation of the remaining 130 is in the ratio 700 : 160 giving impairments of 106 and 24 respectively
OK?
Bringing this post back as I noticed that the general question has already been asked and did not want to duplicate.
So is the reason that Inventory is not impaired because it’s considered a current asset? My mistake in the question is that I was pro rating the 100K of impairment remaining against P&E, buildings AND inventory, when it looks like I should have just used P&E and Buildings
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