- 5 Marks
FR – Nov 2021 – L2 – Q2c – Financial Reporting Standards and Their Applications
This question addresses how to account for the impairment of a cash-generating unit under IAS 36, including the allocation of impairment to assets.
Question
Kwik Ltd (Kwik) runs a unit in Ablekuma Metropolis that has suffered a massive drop in income due to failure in its technology on 1 January 2018. As a result, the following carrying amounts were recorded in the books immediately before the impairment test.
Asset | Carrying Amount (GH¢million) |
---|---|
Goodwill | 20 |
Technology | 5 |
Equipment | 10 |
Land | 50 |
Buildings | 30 |
Other net assets | 40 |
Total | 155 |
The value in use of the unit is estimated at GH¢85 million, and Kwik has received an offer of GH¢75 million for the unit. The technology is worthless following its complete failure. Other net assets include inventory, receivables, and payables. It is considered that the carrying amount of other net assets is a reasonable representation of its net realisable value.
Required:
In accordance with IAS 36: Impairment of Assets, show the accounting treatment for the above transactions.
Find Related Questions by Tags, levels, etc.
- Tags: Allocation of Impairment, Cash-Generating Unit, Fair Value, Goodwill, Impairment, Value in Use
- Level: Level 2
- Topic: Financial Reporting Standards and Their Applications
- Series: NOV 2021