Atlantic Shipping and Transportation Ltd divides its operations into four kinds, and its headquarters in Hong Kong is not allocated to the four kinds of operations with a carrying amount of $2 billion. Atlantic Shipping is reviewing the impairment of each operation due to the keen competition in the shipping and transportation industries. It considers that each operation is a cash generating unit. The carrying amount of each operation and its estimated value in use are set out as follows (in $million): Shipping Terminal Bus Other Operation Operation Operation Operation Carrying amount of the unit 1,000 2,500 2,000 800 Estimated remaining 10 years 20 years 10 years 15 years useful Life Value in Use 2,500 2,000 2,000 500 The back-office operation and related assets are carried at $ 1 billion. However, Atlantic Shipping considers that only headquarters can be allocated on a reasonable and consistent basis and no allocation of the back-office operations and related assets should be reasonable and consistent. During the impairment review, a proposal of a potential buyer to buy out the whole company has just been received at $ 7.5 billion. Determine the impairment loss and suggest journal entries.

Atlantic Shipping and Transportation Ltd divides its operations into four kinds, and its headquarters in Hong Kong is not allocated to the four kinds of operations with a carrying amount of $2 billion. Atlantic Shipping is reviewing the impairment of each operation due to the keen competition in the shipping and transportation industries. It considers that each operation is a cash generating unit. The carrying amount of each operation and its estimated value in use are set out as follows (in $million): Shipping Terminal Bus Other Operation Operation Operation Operation Carrying amount of the unit 1,000 2,500 2,000 800 Estimated remaining 10 years 20 years 10 years 15 years useful Life Value in Use 2,500 2,000 2,000 500 The back-office operation and related assets are carried at $ 1 billion. However, Atlantic Shipping considers that only headquarters can be allocated on a reasonable and consistent basis and no allocation of the back-office operations and related assets should be reasonable and consistent. During the impairment review, a proposal of a potential buyer to buy out the whole company has just been received at $ 7.5 billion. Determine the impairment loss and suggest journal entries.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 25P

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