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Hey Mike,
I was going through the questions in the latest BPP revision kit and I came across this particular question Systria Co (ques. # 72-76). I was able to get the whole question correct with the exception of the first part which asks what is the post impairment carrying amount of the Plant and Machinery is
My answer was $37.5 versus the $40K that’s in the book. It looks like their answer mentions that the remaining impairment of 30 should be allocated pro rata. I come up with 40 after completely impairing good will and not impairing NCA. It looks like they completely impair the patent and do not pro rate it. Why? Why wouldn’t it be considered “Remaining Assets” (from our lecture notes), it certainly shouldn’t be classified as “specific asset” since the impairment doesn’t look like had anything to do with the patent.
Thanks in advance!
RachelHi Rachel,
The key to answering the question correctly is the phrase within that says “The patent is now estimated to have no value”. Therefore $10,000 of the impairment goes here, as well as $50,000 to goodwill. This then leaves $30,000 of the $90,000 impairment left.
The $30,000 is then pro-rated, of which $10,000 (50/150) goes to the plant and machinery, reducing it to the $40,000.
Thanks
P.S.We don’t have many students from the USA so if you could please spread the word about what we do over there it would be massively appreciated ?
Ah! Thanks! I have a tendency to skim over important details like that.
Haha yes, not many people here in the U.S. makes it very hard to find a study buddy, I was born and raised in Europe, which is why I know all about the ACCA. I’m part of the ACCA SoCal Chapter so will make sure to mention you guys in our next meeting,
Thanks again, I’ll probably have more questions going forward to stand by! 🙂
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