Question

Quest Ltd. has the following assets in a CGU:

	Carrying Value (thousands)
Equipment		$	600
Building			650
Land			700
Goodwill			550
		$	2,500

The recoverable amount has been determined to be $1,500. The separate fair value less costs to sell for land is $600; no other assets could be separately valued. Required: 1. Allocate the impairment loss to individual assets and calculate the net book value of each asset after the impairment. (Enter answers in thousands of dollars.)

2. Assume that the recoverable amount recovered to $1,800 in the subsequent year. Allocate the impairment reversal to individual assets and calculate the net book value of each asset after the impairment. The separate fair value less costs to sell for land remains at $600. There is no concern with a ceiling value when assigning the recovery to building or equipment. (Enter answers in thousands of dollars.)

Answer 1

Answer :

The impairement loss is $1,000($2,500 - $1,500 recoverable amount)

#	Carrying value (Thousands)	Proportion (Equipment and building only $900 base)	Allocation of impairment loss	Working note	Net Book value
Equipment	$600	48%	$168	Working note 3	$432
Building	$650	52%	$182	Woring note 3	$468
Land	$700	-	$100	Working note 2	$600
Goodwill	$550	-	$550	Working note 1	$ -
	$2,500	-	$1,000	-	$1,500

Working Notes

1. Allocation first

2. Allocation only to the limit of fair value less cost to sell = ($700-$600) = $100

3. Proportion based only on assets excluding land and goodwill ($1,000 - $550 - $100);$320

($350*48%) = $168

($350*52%) = $182

[$600/($600 + $650)]*100 = 48%

[$650/ ($600 + $650)]*100 = 52%

(2). The impairement loss reversal is $300($1,800 - $1,500)

#	Carrying value (Thousnads)	Proportion(Equipment and building only $1,250 base)	Allocation of impairemet loss	Working notes	Net Book value
Equipment	$432	48%	$144	Working note 3	$576
Building	$468	52%	$156	Working note 3	$624
Land	$600	-	$-	Working note 2	$600
Goodwill	$-	-	$-	Working note 1	$-
-	$1,500	-	$300	-	$1,800

Working Notes

1. Not Reversed

2. Not reversed because fair value less cost to sell is not changed = ($700 - $600) = $100

3. Proportion based only on assets excluding land and goodwill $300

($300*48%) = $144

($300*52%) = $156

[$432/(432 + $468)]*100 = 48%

[$468 / ($432 + $468)]*100 = 52%