Question Tag: IAS 36

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CR – May 2017 – L3 – Q3c – Impairment of Assets (IAS 36)

Allocate an impairment loss across assets in a cash-generating unit based on IAS 36.

Question

A cash-generating unit holds the following assets:

Asset	Value (N’Million)
Goodwill	160
Patent	320
Property, Plant and Equipment	480

An annual impairment review is required as the cash-generating unit contains goodwill. The most recent review assesses its recoverable amount to be N720 million. An impairment loss of N240 million has been incurred and has been recognised in profit or loss.

Required:
Show how the value of the assets held by the cash-generating unit will change after the impairment test based on the information provided above.

Answer

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Tags: Asset Allocation, CGU, Goodwill, IAS 36, Impairment Loss
Level: Level 3

Topic: Impairment of Assets (IAS 36)

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

Question

IAS 36 stipulates how a company should test for impairment of assets. A multinational oil marketing company operating in Nigeria is not sure how to test for impairment of its assets, especially those that do not generate cash flows that are independent of other assets.

Required:

(i) Identify TWO external and TWO internal indicators that an asset of the multinational oil company may have been impaired. (2 Marks)

(ii) Briefly discuss how the multinational oil company should test for impairment of assets that do not generate independent cash flows. (6 Marks)

Answer

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Tags: Cash Flows, IAS 36, Impairment, Multinational Company, Testing
Level: Level 3

Topic: Impairment of Assets (IAS 36)

CR – May 2017 – L3 – Q3a – Impairment of Assets (IAS 36)

Discuss why FRCN should focus on impairment of non-financial and deferred tax assets during economic recession.

Question

The economic environment in the country has been very harsh, and it is now common knowledge that the economy is in a recession. This downturn impacts the income-generating capacity of companies, particularly in industries experiencing a significant decline in fortunes. Consequently, financial reporting regulators must closely examine evidence of impairment of assets in financial statements submitted by such companies.

Required:
Discuss briefly the reasons why the Financial Reporting Council of Nigeria (FRCN) should focus on the impairment of non-financial assets and deferred tax assets of listed companies in Nigeria during this period of slow economic growth. Also, outline the key areas entities should focus on when accounting for these items.

Answer

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Tags: Deferred Tax, Economic Recession, IAS 12, IAS 36, Impairment
Level: Level 3

Topic: Impairment of Assets (IAS 36)

CR – May 2021 – L3 – Q6 – Associates and Joint Ventures (IAS 28)

Discuss equity accounting for investment, accounting for deferred tax, and calculate the recoverable amount of equipment.

Question

Awa Publish has just recently acquired 18% of the shareholding in Tunbe, making it the second largest single shareholder. The majority shareholder has 58% voting shares, while the remainder of the shares is held by ten other shareholders, none holding more than 5% voting shares. The board of directors of Tunbe is made up of 12 members, with Awa Publish having 3 members and the majority shareholder having 7 members.

Awa Publish was able to negotiate its representation on the board due to its strategic importance in Tunbe’s operations and expansion plans. The directors of Awa Publish accounted for its investment in Tunbe as an equity investment. The directors feel that Tunbe should not be accounted for as an associate because Awa Publish does not have 20% of the voting interest and thus does not exercise significant influence over Tunbe.

Tunbe has been making losses for the past three years and has only returned a taxable profit once in the last five years. The projection is that Tunbe will return to making taxable profits in another five years. As part of the acquisition of shares in Tunbe, deferred tax assets for deductible temporary differences arose. The directors of Awa Publish are unsure how to account for this deferred tax asset.

Awa Publish has an item of equipment that cost N56 million. This item of plant and equipment currently has a carrying amount in the financial statements of N39.2 million. Awa Publish expects the operation of the equipment to generate undiscounted cash flows of N7 million per year for the next five years.

Awa Publish could generate immediate cash flow of N40 million if it sold the equipment today. However, if it did go ahead with the sale, it will have to pay a sales commission of 8.5%. The directors of Awa Publish are performing an annual impairment review and understand that determining the recoverable amount is an important part of this exercise.

Required:

a. Discuss how the investment in Tunbe should be accounted for in the financial statements of Awa Publish. (7 Marks)

b. Advise the directors of Awa Publish how the deferred tax asset that has arisen should be accounted for. (7 Marks)

c. Assist the directors of Awa Publish to determine the recoverable amount of the equipment. You may assume a discount rate of 10% or five-year annuity rate of 3.791, if relevant. (6 Marks)

Answer

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Tags: Deferred Tax, Equity Accounting, IAS 12, IAS 36, Recoverable Amount
Level: Level 3

Topic: Associates and Joint Ventures (IAS 28), Impairment of Assets (IAS 36), Income Taxes (IAS 12)

AAA – May 2024 – L3 – SB – Q2 – Overview of Advanced Audit and Assurance

Discuss audit review types, include necessary IAS 16 and IAS 36 information in the audit checklist, and advise on misclassified asset treatment.

Question

The statement below is an extract of property, plant and equipment from the “notes to the financial statements” of ABC Plc:

	Land and buildings	Plant, equipment, fixtures and fittings, and motor vehicles	Total
Costs (₦)
At January 1, 2020	75,230,481	120,454,850	195,685,331
Additions	12,540,000	16,000,500	28,540,500
Acquisitions through business combinations	24,400,000	35,750,430	60,150,430
Classified as held for sale	(10,200,450)	(15,450,600)	(25,651,050)
Disposals	(5,000,465)	(10,700,250)	(15,700,715)
At December 31, 2020	96,969,566	146,054,930	243,024,496
Accumulated depreciation and impairment losses
At January 1, 2020	46,660,254	66,675,860	113,336,114
Depreciation charge for the year	5,594,523	17,220,518	22,815,041
Classified as held for sale	(7,650,338)	(9,270,000)	(16,920,338)
Disposals	(3,762,523)	(9,034,069)	(12,796,592)
Impairment losses	5,267,533	6,022,713	11,290,246
Reversal of Impairment losses	(4,515,028)	(4,818,170)	(9,333,198)
At December 31, 2020	41,594,421	66,796,852	108,391,273

Net carrying amount
At December 31, 2020: ₦55,375,145 (Land and buildings), ₦79,258,078 (Plant, equipment, fixtures, and fittings, and motor vehicles), Total: ₦134,633,223
At December 31, 2019: ₦28,590,212 (Land and buildings), ₦53,778,390 (Plant, equipment, fixtures, and fittings, and motor vehicles), Total: ₦82,368,602

The above was the situation of the statement of financial position of the company when it was signed at the board of directors meeting. During further review to sign off the audit file, it was discovered that the classification of some of the assets as impaired was due to wrong classification and the value had actually increased due to a new road network in the location. This affected the impairment losses for the year. The new value of the buildings affected and shown in the note above as available from market survey had actually grown to ₦8.5 million within the period under review.

Required:

Evaluate the different types of audit review, the purposes, and the scope of the reviews. (10 Marks)
Discuss the necessary information to be included in the audit checklist based on the information above in relation to IAS 16 – Property, Plant, and Equipment and IAS 36 – Impairment of Assets. (7 Marks)
Advise on the treatment of the issue raised with regard to the wrongly classified assets. (3 Marks)

Answer

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Tags: and Equipment, Asset Classification, Audit Review, Financial Reporting, IAS 16, IAS 36, Impairment Reversal, Plant, Property
Level: Level 3

Topic: Overview of Advanced Audit and Assurance
Series: MAY 2024

CR – Nov 2023 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Sports PLC Group, considering goodwill, non-controlling interests, impairments, and disposals.

Question

Sports PLC is a company which operates in the service sector. Sports PLC has a business relationship with Football PLC and Volleyball PLC. The financial positions of these companies as at September 30, 2020, are stated below:

Item	Sports PLC	Football PLC	Volleyball PLC
Non-current assets:	N’m	N’m	N’m
Property, plants, and equipment	1,840	600	620
Investment in subsidiaries:
– Football PLC	1,460	–	–
– Volleyball PLC	640	–	–
Investment in Handball PLC	96	–	–
Intangible assets	396	60	70
Total Non-current assets	3,792	1,300	690
Current assets	1,790	960	500
Total assets	5,582	2,260	1,190

Equity and liabilities

Item	Sports PLC	Football PLC	Volleyball PLC
Ordinary share capital	1,840	800	400
Other components of equity	146	74	50
Retained earnings	1,790	884	278
Total equity	3,776	1,758	728
Non-current liabilities	990	246	186
Current liabilities	816	256	276
Total liabilities	1,806	502	462
Total equity and liabilities	5,582	2,260	1,190

Additional Information

Acquisition of Football PLC:
- On October 1, 2018, Sports PLC acquired 70% of the equity interest in Football PLC. The purchase consideration was cash of N1,460 million. At the acquisition date, the fair value of the non-controlling interests (NCI) in Football PLC was N590 million. The fair value of the identifiable net assets acquired was N1,670 million. Retained earnings of Football PLC were N638 million, and other components of equity were N54 million. The excess in fair value is due to non-depreciable land.
Acquisition of Volleyball PLC:
- On October 1, 2019, Football PLC acquired 80% of the equity interest in Volleyball PLC for a cash consideration of N640 million. The fair value of the non-controlling interests for 20%, 30%, and 44% holdings was N144 million, N216 million, and N322 million, respectively. At the date of acquisition, the fair value of the identifiable net assets of Volleyball PLC was N724 million. Retained earnings were N212 million, and other components of equity were N40 million. The excess in fair value is due to non-depreciable land. The group’s policy is to measure the non-controlling interests at fair value at the acquisition date.
Impairment Testing:
- As of September 30, 2020, both Football PLC and Volleyball PLC were tested for impairment. The recoverable amounts for Football PLC and Volleyball PLC were N2,850 million and N1,208 million, respectively. Directors determined that impairment was due to poor performance of intangible assets.
Investment in Handball PLC:
- On October 1, 2018, Sports PLC acquired a 14% interest in Handball PLC for N36 million, classified as fair value through other comprehensive income (FVTOCI). On April 1, 2020, Sports PLC acquired an additional 16% interest for N54 million, achieving significant influence. The value of the original 14% investment on April 1, 2020, was N42 million. Handball PLC reported after-tax profits of N40 million for the year ending September 30, 2019, and N60 million for the year ending September 30, 2020. In September 2020, Sports PLC received a dividend of N4 million from Handball PLC, credited to other components of equity.
Project Development Costs:
- Sports PLC purchased patents costing N20 million on October 1, 2019, to develop new products. An additional investigative cost of N14 million was incurred, and a working prototype was created at a cost of N8 million. Another N6 million was spent to prepare the product for sale, and marketing costs amounted to N4 million. All costs were included in intangible assets.
Disposal Plan:
- Sports PLC intends to dispose of a major patent line. At the date the criteria for “held for sale” were met, the carrying amounts were:
  - Property, Plant, and Equipment: N36 million
  - Inventories: N98 million
  - Current Liabilities (Trade Payables): N6 million
- Expected proceeds are N60 million. No adjustments have been made to the financial statements for this decision.

Required: Prepare the consolidated statement of financial position for Sports PLC Group as of September 30, 2020. (30 Marks)

Answer

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Tags: consolidated financial statements, Disposal, Goodwill, Group Accounts, IAS 36, IFRS 10, Impairment, Investment in Associate, Non-Controlling Interest
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)
Series: NOV 2023

FR – May 2017 – L2 – SB – Q3 – Partnership Account

Advise Bode Limited on accounting treatment for impairment, borrowing costs, and reclassification to investment property in accordance with IAS 36, IAS 23, and IAS 40.

Question

You are a financial reporting consultant. The management of Bode Limited, a well-diversified company with branches in all states of the federation, has some transactions for which it requires advice. Bode Limited has a financial accountant who is not yet a qualified accountant. These transactions are as follows:

Impairment of Assets: Bode Limited recognized a cash-generating unit during the year ended December 31, 2015, comprising:
- Property, plant, and equipment: N4,050 million
- Goodwill: N450 million
- Other assets: N2,700 million
  Total carrying amount: N7,200 million
The management estimated the recoverable amount of the cash-generating unit at N6,300 million as of December 31, 2015. The financial accountant understands some provisions of IAS 36 on asset impairment but is uncertain about how to allocate impairment across these assets within the unit.
Borrowing Costs: On January 1, 2015, Bode Limited borrowed N300 million to fund the construction of two assets, expected to take a year to complete. The funds were drawn on January 1 and were allocated as follows, with the remaining funds invested temporarily:
- Asset X: N50 million on January 1, N50 million on July 1
- Asset Y: N100 million on January 1, N100 million on July 1
  The loan interest rate is 9% per annum, and surplus funds can be invested at a rate of 7% per annum.
Investment Property Reclassification: The company’s head office in Abuja, previously owner-occupied, was vacated and let out on June 30, 2015, due to a cost-saving decision to move operations to a nearby branch office. The property, initially recognized under IAS 16 at a cost of N37.5 million with a 50-year useful life, was revalued to N52.5 million by an independent valuer as of December 31, 2015. Bode Limited’s accounting policy for investment properties is to use the fair value model.

Required:
Write a memo advising Bode Limited on the accounting treatments for each transaction in their financial statements. Provide relevant calculations where necessary.

Answer

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Tags: Borrowing Costs, IAS 23, IAS 36, IAS 40, Impairment of Assets, Investment Property

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2017

FR – May 2024 – L2 – SB – Q4 – Impairment of Assets (IAS 36)

Differentiate between impairment and depreciation, and discuss the indicators and accounting treatment of impairment as per IAS 36.

Question

a. Differentiate between impairment and depreciation. (5 Marks)

b. Discuss the following as contained in IAS 36 – Impairment of Assets: i. Indicators of impairment.
ii. How to identify and account for impairment of assets. (6 Marks)

c. A non-current asset in the statement of financial position of Zamfara Ltd, an SME, at the beginning of the financial year had a carrying amount of ₦800,000. The asset had previously been revalued, and there was a revaluation surplus of ₦50,000 relating to it in the revaluation reserve. At the end of the financial year, Zamfara Ltd suspected that the asset had been impaired. It, therefore, estimated the recoverable amount of the asset and found this to be ₦600,000. The depreciation charge on the asset for the year would be ₦80,000.

Required:
As the finance manager of Zamfara Ltd, explain with relevant computation the accounting treatments required in line with the provisions of IAS 36. (9 Marks)

Answer

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Tags: Depreciation, Financial Reporting, IAS 16, IAS 36, Impairment
Level: Level 3

Topic: Impairment of Assets (IAS 36)
Series: MAY 2024

FR – Nov 2015 – L2 – Q4b – Impairment of Assets (IAS 36)

Assess whether plant and equipment is impaired and explain how impairment loss should be treated in the books.

Question

The following information relates to individual plant and equipment used by Phonex Nigeria Limited for its telecommunication operations as at December 31, 2014.

Plant and Equipment	Carrying Amount (N’000)	Fair Value less cost to sell (N’000)	Value in use (N’000)
1. Mast	297,500	302,500	285,000
2. Generators	592,500	517,500	512,500
3. Computer equipment	287,500	292,500	307,500
4. Credit card machines	207,500	187,500	197,500
5. Motor vehicles	77,500	65,000	–

Additional information:

i. The Mast and the Generator are carried at revalued amounts, and the cumulative revaluation surplus in other comprehensive income for the equipment are N30,000,000 and N15,000,000, respectively.

ii. The motor vehicles are buses used for transporting employees in the morning and evening, and it is not possible to determine the value in use of the buses separately because the buses do not generate cash inflows from continuing use that are independent of the cash flows from other assets.

Required:
Draft a memo addressed to your boss indicating whether each of the plant and equipment is impaired or not and also explaining how the impairment loss should be treated in the books of Phonex Nigeria Limited as at December 31, 2014.

Answer

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Tags: Assets, Financial Reporting, IAS 36, Impairment, Impairment Loss, Plant and Equipment
Level: Level 2

Topic: Impairment of Assets (IAS 36)
Series: NOV 2015

FR – Nov 2015 – L2 – Q4a – Impairment of Assets (IAS 36)

List external and internal factors an entity should consider to assess asset impairment.

Question

The purpose of IAS 36: Impairment of Assets is to provide entities with guidance to determine whether an asset is impaired and how the impairment should be recognized.

Required:
a. In assessing whether there is an indication that an asset may be impaired, what factors should an entity consider?

Answer

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Tags: Assets, IAS 36, Impairment, Indicators
Level: Level 2

Topic: Impairment of Assets (IAS 36)
Series: NOV 2015

CR – May 2017 – L3 – Q3c – Impairment of Assets (IAS 36)

Allocate an impairment loss across assets in a cash-generating unit based on IAS 36.

Question

A cash-generating unit holds the following assets:

Asset	Value (N’Million)
Goodwill	160
Patent	320
Property, Plant and Equipment	480

Required:
Show how the value of the assets held by the cash-generating unit will change after the impairment test based on the information provided above.

Answer

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Tags: Asset Allocation, CGU, Goodwill, IAS 36, Impairment Loss
Level: Level 3

Topic: Impairment of Assets (IAS 36)

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

Question

Required:

(i) Identify TWO external and TWO internal indicators that an asset of the multinational oil company may have been impaired. (2 Marks)

(ii) Briefly discuss how the multinational oil company should test for impairment of assets that do not generate independent cash flows. (6 Marks)

Answer

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Tags: Cash Flows, IAS 36, Impairment, Multinational Company, Testing
Level: Level 3

Topic: Impairment of Assets (IAS 36)

CR – May 2017 – L3 – Q3a – Impairment of Assets (IAS 36)

Discuss why FRCN should focus on impairment of non-financial and deferred tax assets during economic recession.

Question

Answer

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Tags: Deferred Tax, Economic Recession, IAS 12, IAS 36, Impairment
Level: Level 3

Topic: Impairment of Assets (IAS 36)

CR – May 2021 – L3 – Q6 – Associates and Joint Ventures (IAS 28)

Discuss equity accounting for investment, accounting for deferred tax, and calculate the recoverable amount of equipment.

Question

Required:

a. Discuss how the investment in Tunbe should be accounted for in the financial statements of Awa Publish. (7 Marks)

b. Advise the directors of Awa Publish how the deferred tax asset that has arisen should be accounted for. (7 Marks)

Answer

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Tags: Deferred Tax, Equity Accounting, IAS 12, IAS 36, Recoverable Amount
Level: Level 3

Topic: Associates and Joint Ventures (IAS 28), Impairment of Assets (IAS 36), Income Taxes (IAS 12)

AAA – May 2024 – L3 – SB – Q2 – Overview of Advanced Audit and Assurance

Discuss audit review types, include necessary IAS 16 and IAS 36 information in the audit checklist, and advise on misclassified asset treatment.

Question

The statement below is an extract of property, plant and equipment from the “notes to the financial statements” of ABC Plc:

	Land and buildings	Plant, equipment, fixtures and fittings, and motor vehicles	Total
Costs (₦)
At January 1, 2020	75,230,481	120,454,850	195,685,331
Additions	12,540,000	16,000,500	28,540,500
Acquisitions through business combinations	24,400,000	35,750,430	60,150,430
Classified as held for sale	(10,200,450)	(15,450,600)	(25,651,050)
Disposals	(5,000,465)	(10,700,250)	(15,700,715)
At December 31, 2020	96,969,566	146,054,930	243,024,496
Accumulated depreciation and impairment losses
At January 1, 2020	46,660,254	66,675,860	113,336,114
Depreciation charge for the year	5,594,523	17,220,518	22,815,041
Classified as held for sale	(7,650,338)	(9,270,000)	(16,920,338)
Disposals	(3,762,523)	(9,034,069)	(12,796,592)
Impairment losses	5,267,533	6,022,713	11,290,246
Reversal of Impairment losses	(4,515,028)	(4,818,170)	(9,333,198)
At December 31, 2020	41,594,421	66,796,852	108,391,273

Required:

Evaluate the different types of audit review, the purposes, and the scope of the reviews. (10 Marks)
Discuss the necessary information to be included in the audit checklist based on the information above in relation to IAS 16 – Property, Plant, and Equipment and IAS 36 – Impairment of Assets. (7 Marks)
Advise on the treatment of the issue raised with regard to the wrongly classified assets. (3 Marks)

Answer

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Tags: and Equipment, Asset Classification, Audit Review, Financial Reporting, IAS 16, IAS 36, Impairment Reversal, Plant, Property
Level: Level 3

Topic: Overview of Advanced Audit and Assurance
Series: MAY 2024

CR – Nov 2023 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Sports PLC Group, considering goodwill, non-controlling interests, impairments, and disposals.

Question

Item	Sports PLC	Football PLC	Volleyball PLC
Non-current assets:	N’m	N’m	N’m
Property, plants, and equipment	1,840	600	620
Investment in subsidiaries:
– Football PLC	1,460	–	–
– Volleyball PLC	640	–	–
Investment in Handball PLC	96	–	–
Intangible assets	396	60	70
Total Non-current assets	3,792	1,300	690
Current assets	1,790	960	500
Total assets	5,582	2,260	1,190

Equity and liabilities

Item	Sports PLC	Football PLC	Volleyball PLC
Ordinary share capital	1,840	800	400
Other components of equity	146	74	50
Retained earnings	1,790	884	278
Total equity	3,776	1,758	728
Non-current liabilities	990	246	186
Current liabilities	816	256	276
Total liabilities	1,806	502	462
Total equity and liabilities	5,582	2,260	1,190

Additional Information

Acquisition of Football PLC:
- On October 1, 2018, Sports PLC acquired 70% of the equity interest in Football PLC. The purchase consideration was cash of N1,460 million. At the acquisition date, the fair value of the non-controlling interests (NCI) in Football PLC was N590 million. The fair value of the identifiable net assets acquired was N1,670 million. Retained earnings of Football PLC were N638 million, and other components of equity were N54 million. The excess in fair value is due to non-depreciable land.
Acquisition of Volleyball PLC:
- On October 1, 2019, Football PLC acquired 80% of the equity interest in Volleyball PLC for a cash consideration of N640 million. The fair value of the non-controlling interests for 20%, 30%, and 44% holdings was N144 million, N216 million, and N322 million, respectively. At the date of acquisition, the fair value of the identifiable net assets of Volleyball PLC was N724 million. Retained earnings were N212 million, and other components of equity were N40 million. The excess in fair value is due to non-depreciable land. The group’s policy is to measure the non-controlling interests at fair value at the acquisition date.
Impairment Testing:
- As of September 30, 2020, both Football PLC and Volleyball PLC were tested for impairment. The recoverable amounts for Football PLC and Volleyball PLC were N2,850 million and N1,208 million, respectively. Directors determined that impairment was due to poor performance of intangible assets.
Investment in Handball PLC:
- On October 1, 2018, Sports PLC acquired a 14% interest in Handball PLC for N36 million, classified as fair value through other comprehensive income (FVTOCI). On April 1, 2020, Sports PLC acquired an additional 16% interest for N54 million, achieving significant influence. The value of the original 14% investment on April 1, 2020, was N42 million. Handball PLC reported after-tax profits of N40 million for the year ending September 30, 2019, and N60 million for the year ending September 30, 2020. In September 2020, Sports PLC received a dividend of N4 million from Handball PLC, credited to other components of equity.
Project Development Costs:
- Sports PLC purchased patents costing N20 million on October 1, 2019, to develop new products. An additional investigative cost of N14 million was incurred, and a working prototype was created at a cost of N8 million. Another N6 million was spent to prepare the product for sale, and marketing costs amounted to N4 million. All costs were included in intangible assets.
Disposal Plan:
- Sports PLC intends to dispose of a major patent line. At the date the criteria for “held for sale” were met, the carrying amounts were:
  - Property, Plant, and Equipment: N36 million
  - Inventories: N98 million
  - Current Liabilities (Trade Payables): N6 million
- Expected proceeds are N60 million. No adjustments have been made to the financial statements for this decision.

Required: Prepare the consolidated statement of financial position for Sports PLC Group as of September 30, 2020. (30 Marks)

Answer

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Tags: consolidated financial statements, Disposal, Goodwill, Group Accounts, IAS 36, IFRS 10, Impairment, Investment in Associate, Non-Controlling Interest
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)
Series: NOV 2023

FR – May 2017 – L2 – SB – Q3 – Partnership Account

Advise Bode Limited on accounting treatment for impairment, borrowing costs, and reclassification to investment property in accordance with IAS 36, IAS 23, and IAS 40.

Question

Impairment of Assets: Bode Limited recognized a cash-generating unit during the year ended December 31, 2015, comprising:
- Property, plant, and equipment: N4,050 million
- Goodwill: N450 million
- Other assets: N2,700 million
  Total carrying amount: N7,200 million
The management estimated the recoverable amount of the cash-generating unit at N6,300 million as of December 31, 2015. The financial accountant understands some provisions of IAS 36 on asset impairment but is uncertain about how to allocate impairment across these assets within the unit.
Borrowing Costs: On January 1, 2015, Bode Limited borrowed N300 million to fund the construction of two assets, expected to take a year to complete. The funds were drawn on January 1 and were allocated as follows, with the remaining funds invested temporarily:
- Asset X: N50 million on January 1, N50 million on July 1
- Asset Y: N100 million on January 1, N100 million on July 1
  The loan interest rate is 9% per annum, and surplus funds can be invested at a rate of 7% per annum.
Investment Property Reclassification: The company’s head office in Abuja, previously owner-occupied, was vacated and let out on June 30, 2015, due to a cost-saving decision to move operations to a nearby branch office. The property, initially recognized under IAS 16 at a cost of N37.5 million with a 50-year useful life, was revalued to N52.5 million by an independent valuer as of December 31, 2015. Bode Limited’s accounting policy for investment properties is to use the fair value model.

Required:
Write a memo advising Bode Limited on the accounting treatments for each transaction in their financial statements. Provide relevant calculations where necessary.

Answer

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Tags: Borrowing Costs, IAS 23, IAS 36, IAS 40, Impairment of Assets, Investment Property

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2017

FR – May 2024 – L2 – SB – Q4 – Impairment of Assets (IAS 36)

Differentiate between impairment and depreciation, and discuss the indicators and accounting treatment of impairment as per IAS 36.

Question

a. Differentiate between impairment and depreciation. (5 Marks)

b. Discuss the following as contained in IAS 36 – Impairment of Assets: i. Indicators of impairment.
ii. How to identify and account for impairment of assets. (6 Marks)

Required:
As the finance manager of Zamfara Ltd, explain with relevant computation the accounting treatments required in line with the provisions of IAS 36. (9 Marks)

Answer

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Tags: Depreciation, Financial Reporting, IAS 16, IAS 36, Impairment
Level: Level 3

Topic: Impairment of Assets (IAS 36)
Series: MAY 2024

FR – Nov 2015 – L2 – Q4b – Impairment of Assets (IAS 36)

Assess whether plant and equipment is impaired and explain how impairment loss should be treated in the books.

Question

The following information relates to individual plant and equipment used by Phonex Nigeria Limited for its telecommunication operations as at December 31, 2014.

Plant and Equipment	Carrying Amount (N’000)	Fair Value less cost to sell (N’000)	Value in use (N’000)
1. Mast	297,500	302,500	285,000
2. Generators	592,500	517,500	512,500
3. Computer equipment	287,500	292,500	307,500
4. Credit card machines	207,500	187,500	197,500
5. Motor vehicles	77,500	65,000	–

Additional information:

i. The Mast and the Generator are carried at revalued amounts, and the cumulative revaluation surplus in other comprehensive income for the equipment are N30,000,000 and N15,000,000, respectively.

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Tags: Assets, Financial Reporting, IAS 36, Impairment, Impairment Loss, Plant and Equipment
Level: Level 2

Topic: Impairment of Assets (IAS 36)
Series: NOV 2015

FR – Nov 2015 – L2 – Q4a – Impairment of Assets (IAS 36)

List external and internal factors an entity should consider to assess asset impairment.

Question

The purpose of IAS 36: Impairment of Assets is to provide entities with guidance to determine whether an asset is impaired and how the impairment should be recognized.

Required:
a. In assessing whether there is an indication that an asset may be impaired, what factors should an entity consider?

Answer

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Tags: Assets, IAS 36, Impairment, Indicators
Level: Level 2

Topic: Impairment of Assets (IAS 36)
Series: NOV 2015

Question Tag: IAS 36

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CR – May 2017 – L3 – Q3c – Impairment of Assets (IAS 36)

Allocate an impairment loss across assets in a cash-generating unit based on IAS 36.

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CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

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CR – May 2017 – L3 – Q3a – Impairment of Assets (IAS 36)

Discuss why FRCN should focus on impairment of non-financial and deferred tax assets during economic recession.

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CR – May 2021 – L3 – Q6 – Associates and Joint Ventures (IAS 28)

Discuss equity accounting for investment, accounting for deferred tax, and calculate the recoverable amount of equipment.

Required:

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AAA – May 2024 – L3 – SB – Q2 – Overview of Advanced Audit and Assurance

Discuss audit review types, include necessary IAS 16 and IAS 36 information in the audit checklist, and advise on misclassified asset treatment.

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CR – Nov 2023 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Sports PLC Group, considering goodwill, non-controlling interests, impairments, and disposals.

Additional Information

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FR – May 2017 – L2 – SB – Q3 – Partnership Account

Advise Bode Limited on accounting treatment for impairment, borrowing costs, and reclassification to investment property in accordance with IAS 36, IAS 23, and IAS 40.

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FR – May 2024 – L2 – SB – Q4 – Impairment of Assets (IAS 36)

Differentiate between impairment and depreciation, and discuss the indicators and accounting treatment of impairment as per IAS 36.

You're reporting an error for "FR – May 2024 – L2 – SB – Q4 – Impairment of Assets (IAS 36)"

FR – Nov 2015 – L2 – Q4b – Impairment of Assets (IAS 36)

Assess whether plant and equipment is impaired and explain how impairment loss should be treated in the books.

You're reporting an error for "FR – Nov 2015 – L2 – Q4b – Impairment of Assets (IAS 36)"

FR – Nov 2015 – L2 – Q4a – Impairment of Assets (IAS 36)

List external and internal factors an entity should consider to assess asset impairment.

You're reporting an error for "FR – Nov 2015 – L2 – Q4a – Impairment of Assets (IAS 36)"

CR – May 2017 – L3 – Q3c – Impairment of Assets (IAS 36)

Allocate an impairment loss across assets in a cash-generating unit based on IAS 36.

You're reporting an error for "CR – May 2017 – L3 – Q3c – Impairment of Assets (IAS 36)"

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

You're reporting an error for "CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)"

CR – May 2017 – L3 – Q3a – Impairment of Assets (IAS 36)

Discuss why FRCN should focus on impairment of non-financial and deferred tax assets during economic recession.

You're reporting an error for "CR – May 2017 – L3 – Q3a – Impairment of Assets (IAS 36)"

CR – May 2021 – L3 – Q6 – Associates and Joint Ventures (IAS 28)

Discuss equity accounting for investment, accounting for deferred tax, and calculate the recoverable amount of equipment.

Required:

You're reporting an error for "CR – May 2021 – L3 – Q6 – Associates and Joint Ventures (IAS 28)"

AAA – May 2024 – L3 – SB – Q2 – Overview of Advanced Audit and Assurance

Discuss audit review types, include necessary IAS 16 and IAS 36 information in the audit checklist, and advise on misclassified asset treatment.

You're reporting an error for "AAA – May 2024 – L3 – SB – Q2 – Overview of Advanced Audit and Assurance"

CR – Nov 2023 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Sports PLC Group, considering goodwill, non-controlling interests, impairments, and disposals.

Additional Information

You're reporting an error for "CR – Nov 2023 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)"

FR – May 2017 – L2 – SB – Q3 – Partnership Account

Advise Bode Limited on accounting treatment for impairment, borrowing costs, and reclassification to investment property in accordance with IAS 36, IAS 23, and IAS 40.

You're reporting an error for "FR – May 2017 – L2 – SB – Q3 – Partnership Account"

FR – May 2024 – L2 – SB – Q4 – Impairment of Assets (IAS 36)

Differentiate between impairment and depreciation, and discuss the indicators and accounting treatment of impairment as per IAS 36.

You're reporting an error for "FR – May 2024 – L2 – SB – Q4 – Impairment of Assets (IAS 36)"

FR – Nov 2015 – L2 – Q4b – Impairment of Assets (IAS 36)

Assess whether plant and equipment is impaired and explain how impairment loss should be treated in the books.

You're reporting an error for "FR – Nov 2015 – L2 – Q4b – Impairment of Assets (IAS 36)"

FR – Nov 2015 – L2 – Q4a – Impairment of Assets (IAS 36)

List external and internal factors an entity should consider to assess asset impairment.

You're reporting an error for "FR – Nov 2015 – L2 – Q4a – Impairment of Assets (IAS 36)"

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