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Hi Mike,
I do not understand examiner answer for this question, imapirment loss allocation to CGU that I can understand, but how to derive carrying amount of $262,500 what is the inter-relation between carrying amount and CGU. Thank you.
Before the impairment the PPE had a carrying value of $335,000 including $35,000 for the now worthless machine
The cgu is worth $950,000 and has a carrying value of $1,170,000 so we need to impair down by $220,000
First, write off the $35,000 worthless machine and we have $185,000 more to impair
Next write off the goodwill $85,000 leaving us with a further $100,000 to impair against the remaining assets
We can’t reduce the net current assets because they are already at recoverable amount
So this remaining $100,000 must go against the Building and the other PPE on a pro-rata basis
The building has a carrying value of $500,000 and the remaining PPE has a carrying value of $300,000 so we need to allocate the further impairment of $100,000 against these two in the ratio of 5:3
3/8 of $100,000 is $37,500 and that is written off the remaining $300,000 carrying value of the PPE
The question asks for the adjusted carrying amount of Aphrodite Co’s plant and equipment after allocating the impairment loss and the answer is therefore $262,500
OK?
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