ExpertHard2 marksMultiple Choice
ACCA · Question 06 · Impairment of Assets
Section A
RetailCorp has a Cash Generating Unit (CGU) with the following carrying amounts: Goodwill $4m, Property $10m, Equipment $6m. An impairment review determines the recoverable amount of the CGU is $15m. The fair value less costs of disposal of the Property is $9m.
What is the carrying amount of the Equipment after allocating the impairment loss?
Section A
RetailCorp has a Cash Generating Unit (CGU) with the following carrying amounts: Goodwill $4m, Property $10m, Equipment $6m. An impairment review determines the recoverable amount of the CGU is $15m. The fair value less costs of disposal of the Property is $9m.
What is the carrying amount of the Equipment after allocating the impairment loss?
Answer options:
A.
$6.00 million
B.
$5.625 million
C.
$5.25 million
D.
$5.625 million
How to approach this question
Calculate total impairment. Allocate to goodwill first. Allocate the remainder pro-rata to other assets based on carrying amounts, ensuring no asset falls below its individual recoverable amount.
Full Answer
D.$5.625 million✓ Correct
Total carrying amount = $4m + $10m + $6m = $20m. Recoverable amount = $15m. Impairment loss = $5m. Allocate first to Goodwill ($4m), reducing it to nil. The remaining $1m is allocated pro-rata to Property and Equipment based on their carrying amounts ($10m and $6m). Equipment allocation = $1m * (6/16) = $0.375m. New carrying amount of Equipment = $6m - $0.375m = $5.625m. Property allocation = $0.625m, reducing it to $9.375m (which is safely above its $9m floor).
Common mistakes
Allocating the remaining impairment entirely to one asset, or hitting the floor incorrectly.
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