ExpertEasy2 marksMultiple Choice
ACCA · Question 23 · Financial Reporting
Section B - Case 2: TidalWave Energy
By 31 December 20X6, TidalWave Energy's tidal lagoon had a carrying amount of $11,900,000. Due to a structural fault discovered in the lagoon wall, an impairment review was conducted. The fair value less costs of disposal is estimated at $9,500,000. The value in use is estimated at $10,200,000.
What is the impairment loss to be recognized for the year ended 31 December 20X6?
Section B - Case 2: TidalWave Energy
By 31 December 20X6, TidalWave Energy's tidal lagoon had a carrying amount of $11,900,000. Due to a structural fault discovered in the lagoon wall, an impairment review was conducted. The fair value less costs of disposal is estimated at $9,500,000. The value in use is estimated at $10,200,000.
What is the impairment loss to be recognized for the year ended 31 December 20X6?
Answer options:
A.
$2,400,000
B.
$1,700,000
C.
$700,000
D.
$0
How to approach this question
Determine the recoverable amount (higher of FVLCD and VIU). Subtract the recoverable amount from the carrying amount.
Full Answer
B.$1,700,000✓ Correct
Recoverable amount is the higher of Fair Value Less Costs of Disposal ($9,500,000) and Value in Use ($10,200,000). Therefore, Recoverable Amount = $10,200,000.
Impairment loss = Carrying Amount ($11,900,000) - Recoverable Amount ($10,200,000) = $1,700,000.
Common mistakes
Using the lower of the two values as the recoverable amount.
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