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Impairment Exercise

The document provides information about asset carrying amounts and impairment losses for different assets. It explains that assets should be impaired when future cash flows are lower than the book value, indicating a permanent reduction in value. For various assets like PPE, a quarry, and development assets, it calculates the impairment loss as the difference between the carrying amount and the higher of value in use or fair value less costs to sell. It also provides examples of impairment calculations for goodwill and other assets within two cash generating units, Turquoise and Pink.

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Afif Asnawi
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58 views3 pages

Impairment Exercise

The document provides information about asset carrying amounts and impairment losses for different assets. It explains that assets should be impaired when future cash flows are lower than the book value, indicating a permanent reduction in value. For various assets like PPE, a quarry, and development assets, it calculates the impairment loss as the difference between the carrying amount and the higher of value in use or fair value less costs to sell. It also provides examples of impairment calculations for goodwill and other assets within two cash generating units, Turquoise and Pink.

Uploaded by

Afif Asnawi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Case Study 1

Carrying Amount at the end of 2020


Beginning 2018 150
Depreciation for 2018 -10
Depreciation for 2019 -10
Depreciation for 2020 -10
Carrying Amount at the end of 2020 120

When should assets be impaired?

 When the projected future cash flows are lower than the book value or net carrying value,
it is deemed that assets have been impaired.
 The financial statements should show evidence of a lasting disability if it is deemed to be
permanent.

Impairment Loss
Value in use FV – costs to Higher to Carrying Impairment
sell both amount Loss
a b c d e=d-c
PPE 50 60 60 150 90
Quarry 15 20 20 40 20
Development

No Goodwill impairment is required as Luna’ Net assets Recoverable value is higher than
carrying value

.
Turquoise CGU: CA of assets: 1,536,000 (1,260,000+276,000)
Recoverable Amount: 1,430,000
Impairment Loss: 106,000
GW suffers $46,000, remaining $60,000 distributed to remaining assets
CA Allocation CA After FVLCTS Allocation CA
Impairment Loss (Draft) Impairment Loss
(Draft)
GW 46,000 46,000 0 46,000 0

IT Network 284,000 284/1316 12,948 271,052 12,948 271,052


(60,000x284/1,316)
Land 450,000 450/1316 20,517 429,483 437,000 13,000 437,000
(60,000x450/1,316) (450,000-437,000)

Plant 393,000 393/1316 18,918 375,082 17,918 375,082


(1,310,000- (60,000x393/1,316)
917,000)

Patent 189,000 189/1316 8,617 180,383 8,617 180,383


(210,000- (60,000x393/1,316)
21,000)

Total $106,000 $98,483


Since, Land only suffered a maximum loss of 13,000, the excess of 20,517-13,000=7,517 will
be distributed to the remaining assets

CA Allocation CA After
Impairment Loss

IT Network $271,052 271,052/826,517 $2,465 $268,587

Plant 375,082 375,082/826,517 3,411 371,671


Patent 180,383 180,383/826,517 1,641 178,742

Total $826,517 $7,517


Dr Impairment Loss $106,000
Cr Goodwill 46,000
Cr IT Network 15,413 (12,948+2,645)
Cr Land 13,000
Cr Plant 21,329 (17,918+3,411)
Cr Patent 10,258 (8,617+1,614)
Pink CGU: CA of Assets: $1,299,000 (1,110,000 + 189,000)
Recoverable Amount: 1,215,000
Impairment Loss: 84,000
GW incurs $32,000 with the remaining $52,000 distributed to the remaining assets (Patent not
included)

CA Allocation CA After FVLCTS Allocation CA


Impairment Loss (Draft) Impairment Loss
GW 32,000 32,000 0 32,000 0

IT Network 116,000 116/982 6,143 $109,587 6,143 $109,587


(52,000x116/982)
Land 290,000 290/982 20,517 274,644 15,356 274,644
(52,000x290/982)

Plant 576,000 576/982 18,918 545,499 540,000 30,501 545,499


(960,000- (52,000x576/982)
384,000)

Total $84,000 $84,000

The Plant’s FVLCTS Is lower than the recorded value after taking the loss, thus incurring the full
loss allotted to it.
Dr Impairment Loss $84,000
Cr Goodwill 32,000
Cr IT Network 6,143
Cr Land 15,356
Cr Plant 30,501

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