1. In allocating an impairment loss for a cash generating unit which of the following assets would not be given a portion of the loss - land; machinery; inventory; manufacturing licence; receivables? Why?
2. How is an impairment test undertaken?
3. Peppermint Ltd has determined that its orchard division has suffered an impairment loss of $42 000 for the year ended 30 June 2013. At that date the carrying amount of the division's assets were
$
Inventory 21 000
Land 200 000
Fruit Trees 114 000
Reticulation Systems 36 000
Goodwill 60 000
Required:
Allocate the loss across the assets of the CGU in accordance with AASB 136, paragraph 104 and prepare the journal entry to record the loss. Show all workings.
4. What is an impairment loss?
5. What is a cash-generating unit?
6. Silkyoak Ltd has determined that its nursery division is a CGU. The carrying amounts of the net assets of the division at 30 June 2013 are:
Land 80 000
Propagating Sheds 48 000
Sales Office 25 000
Equipment (net) 56 000
Inventory 35 000
Receivables 19 000
Accounts Payable (26 000)
Mortgage Loan (50 000)
Silky Oak Ltd has calculated the value in use of the division to be $327 000.
Required
Determine if an impairment loss exists for the nursery division. Show all workings.
7. In allocating an impairment loss for a CGU the carrying amount of any individual asset must not be reduced below what figure?
8. Hovea Ltd has determined that its transport division has suffered an impairment loss of $52 000 for the year ended 30 June 2013. At that date the carrying amount of the division's assets were
$
Receivables 31 000
Inventory 18 000
Land 150 000
Trucks (net) 250 000
Servicing Unit 50 000
Required
Allocate the loss across the assets of the CGU in accordance with AASB 136, paragraph 104. Show all workings.
9. How is value in use for a cash generating unit calculated?
10. Supersatumas grows citrus fruit on a number of orchards in the Perth Hills. This fruit is then processed into fruit juice and other products at their cannery. These products are then sold to the public via their chain of Jucymarket stores. How many cash generating units would the company have? Why?
11. If a portion of an impairment loss for a CGU cannot be allocated to one of the unit's assets because it will breach AASB 136 paragraph 105 what happens to that portion?
12. Timbertown Ltd processes pine trees grown on its own plantations in its timber mills. The milled timber is then made into outdoor furniture for sale to the public. How many cash generating units would the company have? Why?
13. Gumtree Ltd has determined that its picnic ware division is a CGU. The carrying amounts of the net assets of the division at 30 June 2013 are:
Factory (net) $310 000
Land 200 000
Equipment (net) 120 000
Inventory 75 000
Receivables 32 000
Accounts Payable (17 000)
Gumtree Ltd has calculated the value in use of the division to be $680 000.
Required
Determine if an impairment loss exists for the picnic ware division. Show all workings.
14. What is ‘value in use'?
• Value in use is the present value of future cash flows expected to be derived from an asset or a cash generating unit.
15. When should an entity conduct an impairment test?
• The following assets require an impairment test every year:
- Intangible assets with indefinite useful lives
- Intangible assets not yet available for use
- Goodwill acquired in a business combination
• Because the carrying amount of these assets are considered more uncertain than other assets.
• Impairment testing of other assets is required only if there is an indication that an asset might be impaired.
• Assessing whether there is any indication of impairment is done each year.
• Paragraph 12 lists external and internal indicators which, as a minimum, must be considered.
• Evidence may include market values, the financial, economic and legal environments, technical obsolescence or performance of the asset.
16. Can an impairment loss, once recorded, be reversed?
Reversal of an impairment loss
• Where an impairment loss recognised in previous periods no longer exists or has reduced, then a reversal of that impairment loss may be recognised in the current year.
• Reversal of impairment losses depends on whether the reversal relates to an individual asset or CGU.
• Where the recoverable amount is greater than the CA of an individual asset (other than goodwill), the reversal of a prior impairment loss requires adjusting the CA of asset to recoverable amount.
• If the individual asset is recorded under the cost model, the increase in CA is recognised in profit and loss:
DR Accum Deprec. and impairment losses X
CR Income - Impairment loss reversal X
• If the individual asset is recorded under the revaluation model, reversal of impairment loss depends on how the impairment was accounted for in the previous period.
• If the prior impairment loss was taken to P&L, then:
DR Accum Deprec. and impairment losses X
CR Income - Impairment loss reversal X
• If the prior impairment loss was adjusted against revaluation surplus, then the reversal is treated as a revaluation increase:
DR Individual Asset X
CR Asset Revaluation Surplus X
CR Deferred Tax Liability X
• If the reversal of an impairment loss relates to a CGU, the reversal is allocated to the assets of the unit, except for goodwill, pro-rata with the CA of those assets.
• An impairment loss recognised for goodwill shall not be reversed in a subsequent period.
17. Tuart Ltd has determined that its retail division has suffered an impairment loss of $37 000 for the year ended 30 June 2013. At that date the carrying amount of the division's assets were
$
Inventory 92 000
Shop Fittings (net) 40 000
Land 100 000
Buildings 180 000
Additionally, the company has corporate assets worth $150 000, one third of which have been allocated to the retail division.
Required
Allocate the loss across the assets of the CGU in accordance with AASB 136, paragraph 104. Show all workings
18. How are corporate assets tested for impairment?