Question

We Buy Stuff Inc (WBS) tested it's ready food division for impairment on December 31, 2019. The following information is provided for the ready for food division which is classsified as a CGU for impairment purposes:

                                                               

	Net book value	Value in use	Fair value less cost of disposal
Property plant and equipment	75000		60000
Intangible assets	110000		75000
Land and building	60000		65000
Total assets	245000	220000	200000

WBS year end is December 31 and they follow IFRS.

Required

   Prepare the journal entries for WBS to record any impairment for the year ended December 31, 2019.

Round percent calculations to one decimal place (eg 22.1%) and all numbers to the nearest dollar.

Answer 1

We Buy Stuff Inc

Journal Entry

Particulars	Debit($)	Credit($)
Impairment Loss A/c Dr To Property Plant and Equipment A/c To Intangible Asset A/c Land and Building A/c (Being impairment loss on an asset recognized)	25,000	0 7,650 11,225 6,125
Statement of Profit and loss A/c Dr To Impairment Loss A/c (Being impairment loss transferred to statement of profit and loss)	25,000	0 25,000

Working Note :

Step 1 : Computation of Recoverable amount

Recoverable amount of an asset or cash generating unit is the higher of its fair value less cost of disposal and its value in use.

= Higher of Fair value less cost of disposal and Value in use

= Higher of $ 2,00,000 and $ 2,20,000

= $ 2,20,000

Step 2 : Computation of Impairment loss

(An impairment loss is recognized for cash generating unit if, and only if, the recoverable amount of the unit is less than the carrying amount of the unit)

= Carrying amount - Recoverable amount

= $ 2,45,000 - $ 2,20,000

= $ 25,000

Step 3 : Allocation of Impairment Loss

The impairment loss is allocated to reduce the carrying amount of the assets of the unit (group of units) in the following order.

a) first,to reduce the carrying amount of any goodwill allocated to the cash generating unit

b) then, to the other assets of the units pro rata on the basis of carrying amount of each asset in the unit.

Particulars	Property Plant and Equipment	Intangible Asset	Land and Building	Total
Carrying amount before allocating impairment loss	75,000	1,10,000	60,000	2,45,000
Proportion in Total	30.6%	44.9%	24.5%	100%
Allocation of impairment loss $ 25,000 on pro rata basis	7,650	11,225	6,125	25,000
Carrying amount after allocation of impairment loss	67,350	98,775	53,875	2,20,000