Question

Problem 4 At the beginning of 2012, Ross Technology, Inc. acquired the Valpo Corporation. In addition to cash, receivables, and inventory, the following assets were recorded: Plant and equipment (depreciable assets) $120 million Developed technology (intangible asset) 60 million The plant and equipment is depreciated over an 8-year useful life on a straight-line basis. There is no estimated residual value. The purchased technology is estimated to have a 6-year useful life, no residual value, and is amortized using the straight-line method. At the end of 2014, a change in business climate indicated to management that the operational assets of Valpo might be impaired. The following amounts have been determined: Plant and equipment: Undiscounted sum of future cash flows $65 million Fair value 50 million Developed technology: Undiscounted sum of future cash flows $15 million Fair value 10 million Required:

a) Compute the book value of the plant and equipment and developed technology at the end of 2014.

b) Determine the amount of any impairment loss to be recorded, if any, for the two assets.

Answer 1

	Problem 4
a	Book value of Plant and equipment
	Cost of Plant and equipment	$120,000,000
	Useful life	8 years
	Residual value	$0
	Annual Depreciation	$15,000,000
	Depreciation for 3 years	$45,000,000
	Book value on Dec 31, 2014 ($120 m- $45 m)	$75,000,000
	Book value of Developed Technology
	Cost of purchased technology	$60,000,000
	Useful life	6 years
	Residual value	$0
	Annual Depreciation	$10,000,000
	Depreciation for 3 years	$30,000,000
	Book value on Dec 31, 2014 ($60 m- $30 m)	$30,000,000
b	The amount of impairment loss to be recorded
	Determination of impairment Using IFRS
	Book value of Plant and equipment	$75,000,000
	Plant and equipment recoverable amount
	Higher of:
	Fair value	$50,000,000
	Undiscounted future cash flow expected	$65,000,000
	Impairment loss	$10,000,000
	Determination of impairment Using IFRS
	Book value of Developed Technology	$30,000,000
	Technology recoverable amount
	Higher of:
	Fair value	$10,000,000
	Undiscounted future cash flow expected	$15,000,000
	Impairment loss	$15,000,000