(a) Potter owned a 100% subsidiary, Hogwart that is treated as a cash generating unit. On31 December 2016, there was an industrial accident (a gas explosion) that causeddamage to some of Hogwart's plant. The assets of Hogwart immediately before theaccident were:£'000Goodwill1,8001,2004,0003,500PatentFactory buildingPlantReceivables and cash1,50012,000As a result of the accident, the recoverable amount of the assets held by Hogwart is£6.7 million.The explosion destroyed (to the point of no further use) an item of plant that had acarrying amount of £500,000.Hogwart has an open offer from a competitor of £1 million for its patent. Thereceivables and cash are already stated at their fair values less costs to sell (netrealisable values).Requirement:Calculate the carrying amounts of the cash generating unit, Hogwart, at 31December 2016 after applying any impairment charges.Calculations should be to the nearest £1,000.

Impairment of loss refers to the situation when a recognized reduction in the carrying amount of an…

Potter owned a 100% subsidiary, Hogwart that is treated as a cash generating unit. On 31 December 2016, there was an industrial accident (a gas explosion) that caused damage to some of Hogwart's plant. The assets of Hogwart immediately before the accident were: £'000 Goodwill 1,800 1,200 4,000 3,500 1,500 12,000 Patent Factory building Plant Receivables and cash As a result of the accident, the recoverable amount of the assets held by Hogwart is £6.7 million.

Potter owned a 100% subsidiary, Hogwart that is treated as a cash generating unit. On 31 December 2016, there was an industrial accident (a gas explosion) that caused damage to some of Hogwart's plant. The assets of Hogwart immediately before the accident were: £'000 Goodwill 1,800 1,200 4,000 3,500 1,500 12,000 Patent Factory building Plant Receivables and cash As a result of the accident, the recoverable amount of the assets held by Hogwart is £6.7 million.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter16: Advanced Topics Concerning Complex Auditing Judgments

Section: Chapter Questions

Problem 55RSCQ

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