Question 1

SECTION B

CASE SCENARIO: Zephyr Renewables Co (Zephyr) operates wind farms. On 1 January 20X5, Zephyr entered into a 20-year lease for land to build a new wind farm. Annual lease payments are $500,000, payable in arrears on 31 December. Zephyr's incremental borrowing rate is 5% (the PV of an ordinary annuity of $1 for 20 years at 5% is 12.4622). Zephyr incurred initial direct costs of $100,000. On the same date, Zephyr received a $2,000,000 government grant to assist with turbine construction. The turbines have a 10-year useful life. At 31 December 20X5, grid connection issues indicated potential impairment of a separate cash-generating unit (CGU). The CGU's carrying amount is $15,000,000 (including $500,000 goodwill). The CGU's value in use is estimated at $12,000,000 and its fair value less costs of disposal is $13,000,000.

QUESTION: After allocating the impairment loss, what is the revised carrying amount of the goodwill in the CGU?

Accepted Answer

Recall the IAS 36 rules for allocating an impairment loss in a CGU: First, reduce goodwill to zero. Then, allocate the remainder pro-rata to other assets.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Pro-rating the impairment loss across all assets, including goodwill, rather than writing off goodwill first.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 3

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