Scribd
Upload
53 views4 pages

Ias 36 Impairment of Assets Review Questions

Uploaded by

charlesmicky82
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
53 views4 pages

Ias 36 Impairment of Assets Review Questions

Uploaded by

charlesmicky82
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

C1: CORPORATE REPORTING

IAS 36: IMPAIRMENT OF ASSETS REVIEW QUESTIONS

Prepared By: Godson Leonard [Bachelor of Accounting (Hons), MBA IP, CPA (T))]
Keep in touch via: 0752 643 388 | 0655 343 381|[email protected] | www.covenantfinco.com
C1: CORPORATE REPORTING IAS 36: IMPAIRMENT OF ASSETS REVIEW QUESTIONS

Example 1
A fixed asset was acquired in January 2003 for Tshs 200,000. Depreciation policy is 15%
straight line with a nil estimated residual value. At 1 January 2006 the NFV of the asset
is Tshs 95,000 and the value in use is estimated at Tshs 87,000.

Required:
Has an impairment occurred and, if so, of how much?

REVIEW QUESTION

QUESTION 1

You are provided with the following data for equipment owned by XYZ
▪ Equipment was acquired on 1st January 2000 at a cost of tshs 15,500,000
▪ Accumulated depreciation on 1st January 2003 – 5,625,000
▪ Estimated useful life of the equipment is 8 years & disposal value at the end of its
useful life is tshs500,000
▪ It is being depreciated using straight line method
▪ The market price as at 31st December 2003 was tshs5,000,000 and the cost of disposal
of tshs200,000
▪ The estimated future cash flows from its use is tshs1,500,000 p.a. received at the
beginning of the year

The XYZ has conducted an impairment review at 31st December 2003. Assume that
the equipment will continue to be used and current market risk-free rate of interest is
10%:

Required
a) Determine if the asset is impaired and calculate impairment loss if any.
b) Show how the impairment loss (if any) should be treated in books of accounts,
using journal entries and a balance sheet extract.

QUESTION 2
(a) The objective of IAS 36 Impairment of assets is to prescribe the procedures that an
entity applies to ensure that its assets are not impaired.

Required:
Explain what is meant by an impairment review. Your answer should include
reference to assets that may form a cash generating unit.
Note: you are NOT required to describe the indicators of an impairment or how
impairment losses are allocated against assets.

(b)(i) Telepath acquired an item of plant at a cost of $800,000 on 1 April 2010 that is used
to produce and package pharmaceutical pills. The plant had an estimated residual

Contacts us | Email: [email protected] |Website: www.covenantfinco.com Page | 1


C1: CORPORATE REPORTING IAS 36: IMPAIRMENT OF ASSETS REVIEW QUESTIONS

value of $50,000 and an estimated life of five years, neither of which has changed.
Telepath uses straight-line depreciation. On 31 March 2012, Telepath was informed by
a major customer (who buys products produced by the plant) that it would no longer
be placing orders with Telepath. Even before this information was known, Telepath
had been having difficulty finding work for this plant. It now estimates that net cash
inflows earned from the plant for the next three years will be:
$’000
Year ended: 31 March 2013 220
31 March 2014 180
31 March 2015 170
On 31 March 2015, the plant is still expected to be sold for its estimated realisable value.
Telepath has confirmed that there is no market in which to sell the plant at 31 March
2012. Telepath‟scost ofcapital is 10% and the following values should be used:

value of $1 at: $
end of year 1 0·91
end of year 2 0·83
end of year 3 0·75
(ii) Telepath owned a 100% subsidiary, Tilda, that is treated as a cash generating unit.
On 31 March 2012, there was an industrial accident (a gas explosion) that caused
damage to some of Tilda‟s plant. The assets of Tilda immediately before the accident
were
$000

Goodwill 1,800
Patent 1,200
Factory building 4,000
Plant 3,500
Receivables and cash 1,500
–––––––
12,000
–––––––
As a result of the accident, the recoverable amount of Tilda is $6.7 million
The explosion destroyed (to the point of no further use) an item of plant that had a
carrying amount of$500,000. Tilda has an open offer from a competitor of$1 million
for its patent. The receivables and cash are already stated at their fair values less
costs to sell (net realizable values).

Required:
Calculate the carrying amounts of the assets in (i) and (ii) above at 31 March 2012 after
applying anyimpairment losses. Calculations should be to the nearest $1,000.

Contacts us | Email: [email protected] |Website: www.covenantfinco.com Page | 2


C1: CORPORATE REPORTING IAS 36: IMPAIRMENT OF ASSETS REVIEW QUESTIONS

QUESTION 3
On 1 January 20X0 Multiplex acquired Steamdays, a company that operates a scenic
railway along the coast of a popular tourist area. The summarised statement of financial
position at fair values of Steamdays on 1 January 20X0, reflecting the terms of the
acquisition was:
$'000
Goodwill 200
Operating licence 1,200
Property – train stations and land 300
Rail track and coaches 300
Two steam engines 1,000
Purchase consideration 3,000

The operating licence is for ten years. It was renewed on 1 January 20X0 by the transport
authority and is stated at the cost of its renewal. The carrying values of the property and
rail track and coaches are based on their value in use. The engines are valued at their net
selling prices.
On 1 February 20X0 the boiler of one of the steam engines exploded, completely
destroying the whole engine. Fortunately no one was injured, but the engine was beyond
repair. Due to its age a replacement could not be obtained. Because of the reduced
passenger capacity the estimated value in use of the whole of the business after the
accident was assessed at $2 million.

Passenger numbers after the accident were below expectations even allowing for the
reduced capacity. A market research report concluded that tourists were not using the
railway because of their fear of a similar accident occurring to the remaining engine. In
the light of this the value in use of the business was reassessed on 31 March 20X0 at $1.8
million. On this date Multiplex received an offer of $900,000 in respect of the operating
licence (it is transferable). The realisable value of the other net assets has not changed
significantly.

Required
Calculate the carrying value of the assets of Steamdays (in Multiplex's consolidated
statement of financial position) at 1 February 20X0 and 31 March 20X0 after recognising
the impairment losses. (15 marks)

Contacts us | Email: [email protected] |Website: www.covenantfinco.com Page | 3

You might also like