ExpertHard2 marksMultiple Choice
ACCA · Question 05 · IAS 36 Impairment of Assets
Section A
CityWater, a public utility company, operates a water treatment plant which is treated as a single Cash Generating Unit (CGU). Due to new environmental regulations, the plant's capacity has been restricted. The carrying amounts of the CGU's assets are: Goodwill $4m, Property $10m, Plant & Equipment $6m. The recoverable amount of the CGU is determined to be $15m.
What is the carrying amount of the Property after allocating the impairment loss?
Section A
CityWater, a public utility company, operates a water treatment plant which is treated as a single Cash Generating Unit (CGU). Due to new environmental regulations, the plant's capacity has been restricted. The carrying amounts of the CGU's assets are: Goodwill $4m, Property $10m, Plant & Equipment $6m. The recoverable amount of the CGU is determined to be $15m.
What is the carrying amount of the Property after allocating the impairment loss?
Answer options:
A.
$10.000m
B.
$9.375m
C.
$7.500m
D.
$6.875m
How to approach this question
1. Calculate total impairment (Carrying Amount - Recoverable Amount). 2. Allocate impairment to Goodwill first. 3. Allocate remaining impairment pro-rata to other assets based on their carrying amounts.
Full Answer
B.$9.375m✓ Correct
1. Total Carrying Amount = $4m (Goodwill) + $10m (Property) + $6m (P&E) = $20m.
2. Recoverable Amount = $15m.
3. Total Impairment Loss = $20m - $15m = $5m.
4. Allocation: First, write off Goodwill entirely ($4m). Remaining impairment = $1m.
5. Allocate $1m pro-rata between Property ($10m) and P&E ($6m). Total base = $16m.
6. Property impairment = $1m x ($10m / $16m) = $0.625m.
7. New carrying amount of Property = $10m - $0.625m = $9.375m.
Common mistakes
Allocating the entire $5m impairment pro-rata across all assets including goodwill, or forgetting to write off goodwill first.
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