Title | Tipic 5 Tutorial Suggested Solutions |
---|---|
Author | Shiv Neel |
Course | Financial Accounting |
Institution | The University of the South Pacific |
Pages | 3 |
File Size | 224.9 KB |
File Type | |
Total Downloads | 70 |
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Question 13.7
Reversal of impairment losses
Saxon Ltd conducted an impairment test at 30 June 2015. As a part of that exercise, it measured the recoverable amount of the entity, considered to be a single cash-generating unit, to be $217 600. The carrying amounts of the assets of the entity at 30 June 2015 were: Equipment 200 000 Accumulated depreciation (40 000) Patent 40 000 Goodwill 6 400 32 000 Inventory 1 600 Receivables The receivables held by Saxon Ltd were all considered to be collectable. The inventory was measured in accordance with AASB 102 Inventories. For the period ending 30 June 2016, the depreciation charge on equipment was $14 720. If the equipment had not been impaired the charge would have been $20 000. At 30 June 2016, the recoverable amount of the entity was calculated to be $10 400 greater than the carrying amount of the assets of the entity. As a result, Saxon Ltd recognised a reversal of the previous year’s impairment loss. Required Prepare the journal entry(ies) accounting for the impairment loss at 30 June 2015 and the reversal of the impairment loss at 30 June 2016.
Impairment loss is $22 400 i.e. $240 000 less $217 600. The goodwill of $6 400 is written off. The remaining $16 000 impairment loss is allocated as follows: Patent Equipment
Carrying Amount 40 000 160 000 200 000
Allocation 3 200 12 800 16 000
Net Amount 36 800 147 200 184 000
Note: the question implied that amortisation is NOT required for the Patent. At 30 June 2015, the journal entry to record the impairment is: Impairment loss Accumulated impairment losses - Patent Goodwill Accumulated impairment losses – equipment
Dr
22 400
Cr Cr
3 200 6 400
Cr
12 800
Note: firms can use the ‘Accumulated depreciation & impairment losses’ account, which combines the ‘Accumulated depreciation’ and ‘Accumulated impairment losses’.
At 30 June 2016, in relation to the assets previously adjusted for impairment:
Patent Equipment Accumulated depreciation & impairment losses
CA at 30/6/16 36 800# 200 000 (67 520*)
CA – if no impairment Difference 40 000 3 200 Maximum 200 000 reversal amount of (60 000^) 7 520 impairment 10 720 loss
#
Patent CA 36 800 = 40 000 – 3 200 (the recorded Accum impairment losses on 30/6/15) *Accum depn & impairment losses – Equip: $40,000 + 12 800 + 14 720 ^ Accum depn & impairment losses – Equip if no impairment: $40,000 + 20 000 CA – Equip (at 30/6/16) = 200 000 – 67 520 = 132 480 CA – Equip if no impairment (at 30/6/16) = 200 000 – 60 000 = 140 000 As the recoverable amount at 30 June 2016 is only $10 400 greater than the carrying amount of the entity, this is the maximum reversal amount. The $10 400 reversal is allocated as follows:
Patent Equipment
CA at 30/6/16 36 800 132 480 169 280
Allocation 2 261 8 139 10 400
However, the equipment can only be revalued upwards by $7 520. The balance of $619 is allocated to the patent which increases its allocation to $2 880 which is still less than $3 200. The reversal is then accounted for as follows: Accumulated amortisation and impairment losses - patent Dr Accumulated depreciation & impairment losses - equipment Dr Income – reversal of impairment loss Cr
2 880 7 520 10 400
Note: for patent, firms can choose to use one account ‘Accumulated amortisation and impairment losses’ or two accounts ‘Accumulated amortisation’ and ‘Accumulated impairment losses’. The following journal entry is also correct: Accumulated impairment losses - patent Accumulated impairment losses - equipment Income – reversal of impairment loss
Dr
2 880
Dr Cr
7 520 10 400
Question 22: Semester 2, 2015 MST paper Carrying amount of CGU Cash
10,000
Land
180,000
Goodwill
30,000
Inventory
60,000
Patent
100,000
Vehicles
120,000
Recoverable amount of CGU
500,000
1 mark
450,000
1 mark
50,000
Impairment Loss
Allocation Goodwill Remainder
30,000 20,000
C/A
Pro-rata
1 mark
Loss
New C/A
Land
180,000
45%
9,000 171,000 5 marks
Patent
100,000
25%
5,000
Vehicles 120,000
30%
6,000 114,000 5 marks
400,000
100%
3 marks
3 marks
95,000 5 marks
20,000 380,000
3 marks 3 marks 3 marks
Land, Patent and Vehicles may be reversed
1.5 marks
Goodwill can’t be reversed
0.5 marks...