Question

Skysong Ltd. is a manufacturer of computer network equipment and has just recently adopted IFRS. The wireless division is a cash-generating unit or asset group that has the following carrying amounts for its net assets: land, $20,700; buildings, $26,280; and equipment, $9,720. The undiscounted net future cash flows from use and eventual disposal of the wireless division are $63,900, and the present value of these cash flows is $46,600. The land can be sold immediately for $33,700; however, the buildings and equipment are specialized and cannot be used elsewhere and thus have no resale value.

Allocate the impairment loss to the net assets of the wireless division using the cost recovery model under ASPE. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS

Allocate the impairment loss to the net assets of the wireless division using the rational entity model under IFRS. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

1. As per ASPE the value of building and equipment are included in land

The Value of Land = 20700 + 26280 + 9720 = $56700

The Value of undiscounted future cash flows = $63900

as the Value of land of $56700 is less than undiscounted future cash flows of $63900 there is not impairment loss.

Date	Accounts	Debit	Credit
	No Entry Required

2. As per IFRS

The carrying value of land, building and equipment = $26280 + 9720 + $20700= $56700

The Recoverable amount = present value of cash flows = $46600

thus impairment Loss = $56700 - 46600 = $10100

Allotment of Impairment Loss to Building = Impairment Loss * Carrying Value of Building / Total Carrying Value of Building and equipment

Allotment of Impairment Loss to Building = $10100 * 26280 / 36000

Allotment of Impairment Loss to Building = $7373

Allotment of Impairment Loss to Equipment = Impairment Loss * Carrying Value of Building / Total Carrying Value of Building and equipment

Allotment of Impairment Loss to Equipment = $10100 * 9720 / 36000

Allotment of Impairment Loss to Equipment = $2727

Date	Accounts	Debit	Credit
	Loss on Impairment	$10100
	Accumulated Impairment Losses-Building		$7373
	Accumulated Impairment Losses-Equipment		$2727

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