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Impairment of Assets
5. Solution:
The value in use is computed as follows:
Cash Present
flows PV Factors @10% value
Future revenues from the
continuing use of the asset 90,000 PV ordinary, n=4a 285,288
Residual value – revised 180,000 PV of 1, n=4a 122,942
Total 408,230
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The impairment loss is computed as follows:
Recoverable amount (VIN) 408,230
Carrying amount [(1M - 200K) x 6/10] + 200K 680,000
Impairment loss (271,770)
12/31/x5
Depreciation expense (408,230 – 180K) ÷ 4 57,058
Accumulated depreciation 57,058
6. Solution:
The value in use is computed as follows
Year Cash flows PV of 1 @12% Present value
20x2 12,000,000 n=1 10,714,286
20x3 10,000,000 n=2 7,971,939
20x4 9,000,000 n=3 6,406,022
20x5 8,000,000 n=4 5,084,145
Residual value 2,000,000 n=4 1,271,036
Total 31,447,428
7. Solution:
The value in use is computed as follows:
Cash PV factors Present
Year
flows @10% value
20x2 to 20x6 (first 5 yrs.) 1,000,000 PV ordinary, n=5 3,790,787
20x7 (6th yr.) (1M x 96%) 960,000 PV of 1, n=6 541,895
20x8 (7th yr.) (960K x 98%) 883,200 PV of 1, n=7 453,221
Value in use 4,785,903
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8. Solution:
The impairment loss is computed as follows:
Recoverable amount (VIN) 15,900,000
Carrying amount (4.6M + 4.5M + 3.5M + 7M + 1M - 2.3M) 18,300,000
Impairment loss (2,400,000)
The impairment loss is allocated to the assets of the CGU (that are within the
scope of PAS 36) as follows:
Impairment loss (2,400,000)
Goodwill 1,000,000
Excess to be allocated to the other assets (1,400,000)
Carrying Carrying
amt. before Allocation Allocated amt. after
impairment I.L. allocation
Inv. property 3,500,000 1.4M x (3.5/10.5) (466,667) 3,033,333
PPE - net 7,000,000 1.4M x (7/10.5) (933,333) 6,066,667
10,500,000 9,100,000
9. Solution:
b CA on date of reversal
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Requirement (a): Amount recognized in profit or loss
CA if no IL had been recognized previously 17,675,000
CA on date of reversal (14,257,143 )
Gain on reversal of impairment 3,417,857
10. C
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PROBLEM 22-3: EXERCISES
1. Solution:
The value in use is determined as follows:
3,000 x PV ordinary annuity @12%, n=18* = 21,749
12/31/x5
Amortization expense (27,500 ÷ 18) 1,528
Accumulated amortization 1,528
2. Solution:
The value in use is determined as follows:
Revenues (80,000 x PV ordinary annuity @12%, n=7) 365,101
Residual value [(1M x 10%) x PV of 1 @12%, n=7] 45,235
Value in use 410,335
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4. Solutions:
Requirement (a):
Gain on reversal of impairment = 7M – 6.4M = 600,000
Requirement (b):
Revaluation increase = 0.The new recoverable amount does not exceed the
carrying amount if no impairment loss had been recognized.
Requirement (c):
Depreciation expense = 7M ÷ 10 years = 700,000
5. Solutions:
Case A:
The impairment loss is computed as follows:
Recoverable amount 800,000
Carrying amount 1,080,000
Impairment loss (280,000)
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Carrying Carrying
amt. before Allocation Allocated amt. after
impairment I.L. allocation
Land 300,000 240K x (3/10.4) (69,231) 230,769
Plant 420,000 240K x (4.2/10.4) (96,923) 323,077
Equipment 240,000 240K x (2.4/10.4) (55,385) 184,615
Machinery 80,000 240K x (.8/10.4) (18,462) 61,538
1,040,000 (240,000) 800,000*
*(Rounded-off)
Case B:
(Refer to the solution in the preceding case)
The carrying amount of the land after impairment is compared with its fair
value less costs of disposal:
*(Rounded-off)
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6. Solution:
b CA on date of reversal
*(40+39+38+37+36+35+34) = 259
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CA if no IL had been recognized previously 14,998,780
CA on date of reversal (13,576,190)
Gain on reversal of impairment 1,422,590
Solutions:
Requirement (a):
Requirement (b):
The impairment loss shall be recognized in profit or loss, unless an
asset included in the CGU was previously revalued. In such case, the
allocated impairment to that asset shall be treated as a reduction to the
revaluation surplus. Any excess impairment shall be recognized in profit
or loss.
The impairment loss shall be allocated first to goodwill. The excess loss
shall be allocated to the other noncurrent assets of the CGU.
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PROBLEM 22-5: THEORY
1. D 6. B
2. D 7. C
3. D 8. A
4. D 9. B
5. A 10. A
1. C
Solution:
Recoverable amount - FVLCD 3,000
Carrying amount [(10,000 - 500) x 7.5/10] + 500 (7,625)
Impairment loss (4,625)
2. A
Solution:
The recoverable amount is determined as follows:
Value in use (VIN) - PV of expected net future cash flow 300,000
Fair value less costs of disposal (FVLCD) 250,000
Recoverable amount (higher amt.) – VIN 300,000
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3. B
Solution:
The recoverable amount is determined as follows:
Value in use (VIN) - PV of expected net future cash flow 175,000
Fair value less costs of disposal (FVLCD) 150,000
Recoverable amount (higher amt.) – VIN 175,000
The asset is not impaired because the carrying amount is not less
than the recoverable amount. Therefore, the carrying amount on
August 31, 20x3 (i.e., 170,000) remains unchanged after impairment
testing.
4. B
Solution:
The recoverable amount is determined as follows:
Value in use (VIN) - PV of expected net future cash flow 175,000
Fair value less costs of disposal (FVLCD) 125,000
Recoverable amount (higher amt.) – VIN 175,000
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5. A
Solution:
The recoverable amount is determined as follows:
Value in use (VIN) - PV of expected net future cash flow 150,000
Fair value less costs of disposal (FVLCD) 135,000
Recoverable amount (higher amt.) – VIN 150,000
The carrying amount as of May 31, 20x3 is determined as follows:
Historical cost 400,000
Residual value (50,000)
Depreciable amount 350,000
Divide by: Estimated useful life 5
Annual depreciation 70,000
Divide by: 12
Monthly depreciation 5,833
Multiply by: No. of mos. from 8/31/x0 to 5/31/x3 33
Accumulated depreciation - 5/31/x3 192,500
6. A
Solution:
Accumulated depreciation - 1/1/x1 4,200,000
Impairment loss [3M - (9M - 4.2M)] 1,800,000
Depreciation - 20x1 (3M ÷ 3) 1,000,000
Accumulated depreciation - 12/31/x1 7,000,000
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7. C
Solution:
FV less costs of disposal, net of PV of restoration costs (given) 800,000
Value in use, net of PV of restoration costs (1.2M - 500K) 700,000
Recoverable amount 800,000
8. C
Solution:
Recoverable amount 650,000
Carrying amount, 12/31/x1 (2.4M - 400K*) 2,000,000
Impairment loss (1,350,000)
9. C
Solution:
The depreciation in 20x5 is computed as follows:
(2M x 10%) = 200,000
10. D
Solution:
Recoverable amount (FVLCD) (5.2M - 100K) 5,100,000
Carrying amount 5,000,000
Impairment loss None
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