Question

Colander Co is preparing its financial statements for the year ended 31 December 2018 and has a number of issues to deal with regarding non-current assets.

(1) Colander has suffered an impairment loss of €90,000 to one of its cash-generating units. The carrying amounts of the assets in the cash-generating unit prior to adjusting for impairment are:

	€'000
Goodwill	60
Land and buildings	100
Plant and machinery	50
Net current assets	10

(2) During the year to 31 December 2018 Colander Co acquired Sieve Co for €10 million, its tangible assets being valued at €7 million and goodwill on acquisition being €3 million. Assets with a carrying amount of €2.5 million were subsequently destroyed. Colander has carried out an impairment review and has established that Sieve Co could be sold for €6 million, while its value in use is €5.5 million.

(3) Colander Co owns property originally costing €100,000 with a 50-year useful life. It has accumulated depreciation to date of €20,000. The asset will be revalued to €130,000 at 31 December 2018.

Questions:

What is the post-impairment carrying amount of plant and machinery in (1) above?

Group of answer choices

€40,000

€50,000

€30,000

€20,000

The Finance Director has been asked to report to the Board on the reasons for the impairment review of the cash-generating unit. Which TWO of the following would be internal indicators of impairment of an asset?

Group of answer choices

The asset has been fully depreciated.

The market value of the asset has fallen significantly.

There are adverse changes to the use of the asset to which the asset is put in the entity.

The operating performance of the asset has declined.

What is the recoverable amount of Sieve Co in (2) above?

Group of answer choices

€4.5 million

€6 million

€500,000

€5.5 million

Which of the following effects will the revaluation in (3) above have on Colander's financial statements? (The property is used for administrative purposes and has not been revalued before).

Group of answer choices

There will be a gain on revaluation of €50,000 shown under other comprehensive income

There will be a gain on revaluation of €30,000 increasing the profit for the year

There will be a gain on revaluation of €30,000 shown under other comprehensive income

There will be a gain on revaluation of €50,000 increasing the profit for the year

Answer 1

Question 1:

Calculation of carrying amount of plant & equipment post Impairment :

Impairment loss related to CGU = 90,000

The Impairment loss has to be first allocated to goodwill then to the asset which is impaired.

Therefore, after allocating impairment to goodwill the remaining impairment loss of 30,000(90000 - 60000)

The carrying amount of the P&E = 50000-30000 = 20,000

Option D €20,000

Question 2:

Indicators of Internal Impairment are :

• There are adverse changes to the use of the asset to which the asset is put in the entity.

• The operating performance of the asset has declined

  Question 3:

  Recoverable amount will be Higher of Value in use or Net sale proceeds

  Therefore recoverable Amount for Sieve Co. will be €6 million

  Option B. €6 million

  Question 4:

  Option A. There will be a gain on revaluation of €50,000 shown under other comprehensive income

  carrying Amount of the asset = 100,000 - 20,000 = 80,000

  Revalued Figure to 130,000

  Therefore, Revaluation Surplus = 130,000 - 80,000 = 50,000 which is to be shown under OCI.