QUESTION 9.2
NARRABRI LTD
The carrying amount of the assets of the Toy Train Division is $500 000. If the value in use is $423 000, then there is an impairment loss of $77 000.
The impairment loss is firstly used to write off the goodwill - $50 000. The balance of the loss - $27 000 – is allocated across the other assets, except for inventory assuming it is recorded at the lower of cost and net realisable value:
Carrying Proportion Allocation Net Carrying Amount of Loss Amount Factory 250 000 5/6 22 500 227 500 Brand 50 000 1/6 4 500 45 500 300 000 27 000
The journal entry to record the impairment loss is:
Impairment loss Dr 77 000 Goodwill Cr 50 000 Accumulated depreciation and impairment
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The reversal is then accounted for as follows:
Land Dr 3 600 Accumulated depreciation & impairment losses - plant Dr 9 400 Income – reversal of impairment loss Cr 13 000
QUESTION 9.12
ARARAT LTD
3 divisions are CGUs
Head office and research centre are not CGUs
Allocate head office assets to each division
Determine impairment of research centre with entity as a whole
Step 1: Calculate impairment loss
Adjust the carrying amounts of the CGUs for the allocatable corporate asset (head office) and compare with value in use to determine impairment loss.
Aramac Alpha Amby Carrying amounts of assets 1 400 000 980 000 740 000 Allocation of head office assets 60 000 60 000 60 000 1 460 000 1 040 000 800 000 Value in use 1 550 000 1 000 000 750 000 Impairment loss ______0 (40 000) (50 000)
Step 2: Allocate impairment loss
Alpha Division Carrying Proportion Allocation Adjusted Amount of loss carrying Amount Head office 60 000 60/760 3 158 Land 280 000 280/760 14 736 265 264 Plant 420 000 420/760 22 106 397 894 760 000 40 000
The journal entry is:
Impairment loss Dr 36 842 Land Cr 14 736 Accumulated depreciation and impairment loss – plant Cr 22 106 (Impairment loss – Alpha division)
QUESTION 9.12 (cont’d)
Amby Division
Carrying Proportion Allocation Adjusted Amount of loss carrying Amount Head office 60 000 60/600 5 000 Land
• What impact should the potential foreclosure and extinguishment of debt have on the cash flows used to perform the recoverability test?
Goodwill is considered impaired when the implied fair value of goodwill in a reporting unit of a company is less than its carrying amount, or book value, including any deferred income taxes. By qualitative factors, if the fair value is less than its book value (likelihood more than 50%), two step of the goodwill impairment test is necessary. According to ASC 350-20-35-2 and 3(A&B&D), if the company determines that it is not more likely than not that fair value is less than the book value, it does
of CGUs) and then to the other assets in the CGU (or groups of CGUs) pro-rata on the basis of the carrying amount of each asset in the CGU (or groups of CGUs). An impairment loss recognised for goodwill is recognised immediately in profit or
If their stock price dropped to ZERO, an impairment would not be required because they are comparing the market price of their stock to their carrying amount of stockholder’s equity, which in a deficit. Also, the Company is anticipating those assets to produce future benefits that exceed its costs.
Where explain the concept of Intangible asset, which represents assets that absence of physical substance. Moreover, Goodwill represents an asset from which is expected future economic benefits, emerge from the acquisition of other assets or business combination. Another important point would be the impartments testing as refers ASC 350-20-35-28 where indicates that Goodwill of reporting unit must be tested for impairment annually. The test can be accomplished at any time in the fiscal year. In the case of different reporting unit, the impairment test could be at different times. This citation in the memorandum was provided incorrect (ASC 305-20-35-1 and 28) this encoding does not exist in FASB.
Section 360-10-35-17 of the Code states that an impairment loss shall be recognized if the carrying value of a fixed asset is not recoverable and exceeds its fair value. The carrying value of the fixed asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and disposal of the asset. An impairment loss shall be measured by the amount by which the carrying value exceeds the fair value.
As discussed above, if indicators of impairment exist for an asset (group) to be held and used, an entity determines whether the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question is less than its carrying amount. If those undiscounted cash flows are less than
ASC 320-10-35-35: “In periods after the recognition of an other-than-temporary impairment loss for debt securities, an entity shall account for the other-than-temporarily impaired debt security as if the debt security had
IAS 36-2 states the Impairment of Assets rule shall be applied in accounting for the impairment of all
An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is
The authoritative guidance for asset impairment is to ensure that impairment is recorded and dealt with as depreciation. The scope of the standard is writing off of assets and depreciation. According to the guidance of 360-10-35, it address how long-lived assets that are intended to be held and used in an entity’s business shall be reviewed for impairment. The impairment loss can only be recognized if the carrying amount of a long-lived assets is not recoverable and
If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess, if any, of the asset’s carrying value over its estimated fair value.
Intangible assets are one of the most significant items in Myers financial statement. It consists of goodwill, brand names and trademarks, software and leases. AASB 136 Impairment of Assets requires Goodwill and some of the brand names that are indefinite useful life to test for the impairment. In Myer, there is no impairment loss. Furthermore, the accumulated amortisations of the other intangible assets are shown in the table X have a total value of $73585 thousand. According to AASB 117 Leases, the total rentals leases over the leases term are being expensed on a straight-line basis. In contrast, Myer’s competitor David Jones has only two intangible assets goodwill and software. The accumulated amortisation for software is $28808 thousand which is shown in the table X and it is the total value of accumulated amortisation.
b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or
Net book value at end of year 1 is $8,793. Less what you received on the sale $7,500. Gives you a disposal loss of $1,293 using the straight-line method of depreciation. You then add the disposal loss from the previous years depreciation $1,880, which results in a total income statement impact of $3,173.