Impairment of Assets

SECTION A Under IAS 36 Impairment of Assets, which of the following is an internal indicator of impairment?

**Section A** MetroWater, a public utility, operates a water treatment plant with a carrying amount of $5.2 million. Due to new environmental regulations, its capacity is restricted. The plant could be sold to a neighboring municipality for $4.5 million, with legal and transfer costs of $200,000. Alternatively, MetroWater can continue using it, generating discounted future cash flows of $4.6 million. What is the impairment loss to be recognized under IAS 36?

**Section B - Case 2: EcoWind (Question 3 of 5)** *Scenario:* EcoWind, a renewable energy firm, began constructing a new wind farm on 1 March 20X5. Construction costs (excluding interest) totaled $3,000,000. To fund this, EcoWind took out a $2,000,000 specific loan at 6% per annum on 1 February 20X5. Construction was completed on 30 November 20X5. EcoWind received a $500,000 government grant on 1 December 20X5 to help fund the wind farm, which has a 20-year useful life. EcoWind uses the deferred income method for grants. On 31 December 20X5, EcoWind tested an older solar plant for impairment. Its carrying amount was $1,500,000. Its Fair Value Less Costs of Disposal was $1,200,000 and its Value in Use was $1,300,000. *Question:* What is the impairment loss to be recognized for the older solar plant at 31 December 20X5?

**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 B - Case 2: BioGenix** *Scenario:* BioGenix is a biotechnology firm developing a new gene therapy, 'GeneX'. During the year ended 31 December 20X5, BioGenix incurred the following costs: - $2,000,000 on the research phase (Jan-Jun). - $3,000,000 on the development phase (Jul-Dec), incurred evenly over the 6 months. BioGenix management confirmed that the project met all IAS 38 capitalization criteria on 1 October 20X5. BioGenix also holds a patent for a different drug. On 1 January 20X5, BioGenix licensed this patent to PharmaCo. PharmaCo paid an upfront, non-refundable fee of $5,000,000 for the right to use the patent for 5 years. BioGenix has no further performance obligations. The contract also includes a $2,000,000 milestone payment if PharmaCo achieves $50m in sales in 20X5. By 31 December 20X5, PharmaCo's sales were $30m, and BioGenix determined it is highly probable the milestone will not be met. Finally, BioGenix has a Cash Generating Unit (CGU) that was impairment tested. Carrying amounts: Goodwill $1m, Patent $4m, Equipment $5m. Recoverable amount of the CGU is $7m. *Question:* What is the total impairment loss for the CGU?

**Section B - Case 2: BioGenix** *Scenario:* BioGenix is a biotechnology firm developing a new gene therapy, 'GeneX'. During the year ended 31 December 20X5, BioGenix incurred the following costs: - $2,000,000 on the research phase (Jan-Jun). - $3,000,000 on the development phase (Jul-Dec), incurred evenly over the 6 months. BioGenix management confirmed that the project met all IAS 38 capitalization criteria on 1 October 20X5. BioGenix also holds a patent for a different drug. On 1 January 20X5, BioGenix licensed this patent to PharmaCo. PharmaCo paid an upfront, non-refundable fee of $5,000,000 for the right to use the patent for 5 years. BioGenix has no further performance obligations. The contract also includes a $2,000,000 milestone payment if PharmaCo achieves $50m in sales in 20X5. By 31 December 20X5, PharmaCo's sales were $30m, and BioGenix determined it is highly probable the milestone will not be met. Finally, BioGenix has a Cash Generating Unit (CGU) that was impairment tested. Carrying amounts: Goodwill $1m, Patent $4m, Equipment $5m. Recoverable amount of the CGU is $7m. *Question:* After allocating the impairment loss, what is the new carrying amount of the Patent?