Impairment of Assets
The accountant of Cat Ltd. prepared the following
'000
Cash 10
Receivables 30
Land (for unintended use, fair value measured on 31 December 320
2014)
Company headquarters 2,000
Factory 3,580
Accumulated depreciation of factory (1,820)
Intangibles 300
Accumulated amortization of the intangibles ( 100)
hortly after the trial balance was prepared, the management conducted an analysis and the management determined that it was probable that the assets of the company were impaired. Management believed that the recoverable amount for the whole entity’s assets was $3,640,000. The whole company was regarded as a cash generating unit. All receivables were considered to be collectible.
Under the current accounting policy, all investment properties were measured using the fair value model while the cost model was used for all properties, plants and equipment. At 31 December 2015, the fair value of the land was $300,000.
Required:
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(a) Apply HKAS 36 Impairment of Assets to determine the impairment loss of the cash generating unit of Cat Ltd. Show your workings.
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(b) Suggest the proper accounting treatment for the decrease in the fair value of the land of Cat Ltd
c) Apply HKAS 36 Impairment of Assets to allocate impairment loss to the assets in the CGU of Cat Ltd. Show your workings.
(d) Explain any two factors that the accountant should consider in
determining the cash generating unit for Cat Ltd.
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