ExpertMedium2 marksMultiple Choice
ACCA · Question 04 · Financial Reporting
Section A
SkyNet Logistics operates a fleet of commercial delivery drones. Due to new aviation regulations, the drones' flight paths are restricted, indicating potential impairment. The fleet has a carrying amount of $4,500,000. The fair value less costs of disposal of the fleet is $3,800,000. The value in use is calculated by discounting expected future cash flows of $900,000 per year for the next 5 years at a discount rate of 8%. (The 5-year annuity factor at 8% is 3.993).
What is the impairment loss to be recognized in the statement of profit or loss?
Section A
SkyNet Logistics operates a fleet of commercial delivery drones. Due to new aviation regulations, the drones' flight paths are restricted, indicating potential impairment. The fleet has a carrying amount of $4,500,000. The fair value less costs of disposal of the fleet is $3,800,000. The value in use is calculated by discounting expected future cash flows of $900,000 per year for the next 5 years at a discount rate of 8%. (The 5-year annuity factor at 8% is 3.993).
What is the impairment loss to be recognized in the statement of profit or loss?
Answer options:
A.
$700,000
B.
$906,300
C.
$0
D.
$3,800,000
How to approach this question
Calculate Value in Use. Compare it to Fair Value Less Costs of Disposal. The higher of the two is the Recoverable Amount. Deduct the Recoverable Amount from the Carrying Amount to find the impairment loss.
Full Answer
A.$700,000✓ Correct
Value in use (VIU) = $900,000 × 3.993 = $3,593,700.
Fair value less costs of disposal (FVLCD) = $3,800,000.
Recoverable amount is the higher of VIU and FVLCD, which is $3,800,000.
Impairment loss = Carrying Amount ($4,500,000) - Recoverable Amount ($3,800,000) = $700,000.
Common mistakes
Selecting the lower of FVLCD and VIU as the recoverable amount.
Practice the full ACCA FR — Financial Reporting Practice Exam 6
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