Specimen Exam Q20

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September 2, 2016 at 4:05 am #336946
Koey
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Q20
Telepath Co also owns Rilda Co, a 100% subsidiary, which is treated as a cash generating unit. On 30 September 20X3, there was an impairment to Rilda’s assets of $3,500,000. The carrying amount of the assets of Rilda Co immediately before the impairment were:
$
Goodwill 2,000,000
Factory building 4,000,000
Plant 3,500,000
Receivables and cash (at recoverable amount) 2,500,000

in total: 12,000,000

Question: What is the carrying amount of Rilda Co’s plant at 30 September 20X3 after the impairment loss has been
correctly allocated to its assets?
A $2,479,000
B $2,800,000
C $2,211,000
D $3,500,000

I have no idea why the ans is D. Can I calculate it or it is only an estimation?
Thank You!
September 2, 2016 at 7:57 am #336989
MikeLittle
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The answer isn’t D – please tell me that the answer isn’t D

Even if you WERE to estimate it, the answer couldn’t be D

Surely the answer is B
September 2, 2016 at 10:55 am #337030
Koey
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yes, the ans is B sorry for my careless.
September 2, 2016 at 11:01 am #337035
MikeLittle
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And you can arrive there can you?
September 2, 2016 at 11:18 am #337040
Koey
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No, I cannot
September 2, 2016 at 11:54 am #337045
MikeLittle
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Impairment of $3,500,000

First to go (after any specific assets that are impaired) will be the goodwill of $2,000,000

That leaves a further $1,500,000 to be impaired against the remaining assets

The receivables and cash are already stated at their recoverable amount and we don’t impair below recoverable amount

That leaves the factory building $4,000,000 and the plant $3,500,000 to be impaired on a pro-rata basis (a proportional basis)

The plant is 3,500,000/(3,500,000 + 4,000,000) of the total and that cancels down to 7/15

The factory is 4,000,000/(3,500,000 + 4,000,000) of the total and that cancels down to 8/15

OK so far?

we have $1,500,000 to impair and 7/15 of that amount relates to the plant

So a further $700,000 needs to be impaired against the plant (and $800,000 against the factory building)

That leaves the value of plant after impairment of $3,500,000 – $700,000 = $2,800,000 or answer B

OK?
September 2, 2016 at 2:02 pm #337076
Koey
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understood

thank you sir!!
September 2, 2016 at 7:53 pm #337125
MikeLittle
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You’re welcome
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