Question

One of the cash-generating units of Gotcha Fish Ltd is associated with the manufacture of fishing equipment. At 30 June 2018, Gotcha Fish Ltd believed, based on an analysis of economic indicators, that the assets of the unit may be impaired. The carrying amounts of the assets and liabilities of the unit at 30 June 2018 were:

Cash                                                                                                    $40,000

Trade Receivables                                                                              $20,000

Allowance for doubtful debts                                                              (5,000)

Inventory                                                                                             80,000

Plant                                                                                                    230,000

Accumulated depreciation - plant*                                                     (50,000)

Buildings                                                                                             480,000

Accumulated depreciation - buildings**                                             (240,000)

Land                                                                                                    100,000

Goodwill                                                                                              25,000

Accounts payable                                                                               40,000

Loans                                                                                                  35,000

*depreciated at (p.a.) $50,000

**depreciated at (p.a.) $60,000

Gotcha Fish Ltd determined the value in use of the unit to be $605,000. The trade receivables were considered to be collectable, except those considered doubtful. The plant had a fair value less costs to sell of $170,000. The company allocated the impairment loss in accordance with AASB 136.

During the 2018-19 period, Gotcha Fish Ltd increased the depreciation charge on plant to $55,000 p.a. and to $65,000 p.a. for the buildings. The inventory on hand at 1 July 2018 was sold by the end of the year. At 30 June 2019, Gotcha Fish, because of an observable return in the market of the use of fishing equipment, assessed the recoverable amount of the cash-generating unit to be $50,000 more than the carrying amount of the unit. As a result, Gotcha Fish Ltd recognised a reversal of the impairment loss. At 30 June 2019, the recoverable amount of the land was $95,000.

Required

1. Determine if the assets of the CGU are impaired and, if so, by how much. Show all workings

2. Calculate the allocation of any impairment to the assets of the CGU. Show all workings and explain, with reference to AASB 136, your treatment of various items.

3. Provide an appropriate journal entry for 30/6/2018

4. Determine the allocation of the impairment reversal in 2019. Show all workings and explain, with reference to AASB 136, your treatment of various items.

5. Provide the relevant journal entries for 30/6/2019

You must show all calculations and workings in addition to your answer. You must show narrations for your journal entries. Refer to the relevant Accounting Standard wherever it is requested in the question - do NOT write blocks of text from the Standard, simply quote the paragraph being applied or summarised, e.g. “… as per AASB 136 para 25”.

In your calculations for allocation of any impairment loss and reversal of impairment loss use four figures; that is for example, either 0.2356 or 23.56%.

Answer 1