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URGENT QUESTION Loco Bhd has two divisions, T and R, each of which is a separate cash-generating unit (CGU)
- URGENT QUESTION
- Loco Bhd has two divisions, T and R, each of which is a separate cash-generating unit (CGU). As at 31 December 2017 the net assets of each division, were as follows:
|
T |
R |
|
|
RM |
RM |
|
|
Land at cost |
284,000 |
116,000 |
|
Plant |
450,000 |
290,000 |
|
Accumulated depreciation – Plant |
(240,000) |
(120,000) |
|
Goodwill |
46,000 |
32,000 |
|
Patent |
210,000 |
255,000 |
|
Accumulated amortization – Patent |
(20,000) |
(102,000) |
|
Cash |
20,000 |
12,000 |
|
Inventory |
120,000 |
80,000 |
|
Receivables |
34,000 |
40,000 |
|
Net assets |
904,000 |
603,000 |
Additional information as at 31 December 2017:
- T’s land had a fair value less costs to sell of RM302,000.
- R’s land had a fair value less costs to sell of RM110,000.
- Receivables were considered to be collectable.
- Inventories were measured at lower of cost and net realizable value.
Loco Bhd’s management conducted an impairment testing at 31 December 2017 and determined the recoverable amount of each CGU to be RM811,000 for T and RM520,000 for R.
Required:
For the financial year ended 31 December 2017:
- State the main accounting standard applicable to the above situation. (2 mark)
- Analyse whether the CGU’s are impaired. Explain your answer. (2 marks)
- Calculate impairment loss for each CGU (if any). (4 marks)
- Allocate the impairment loss.
Expert Solution
i The Main Accounting Standard Applicable to the above situation is INDIAN ACCOUNTING STANDARD 36 "IMPAIRMENT OF ASSETS".
ii.YES ther cash generating units are impaired and for that recoverable amount should be estimated and compared with carrying amount and the difference between carrying amount and rercoverable amount will be considered as an impairtment loss.
iii. Carrying Amount of Net Assets of T=904000
Recoverable amount=811000
Impairment loss=Carrying Amount-Recoverable amount
=904000-811000
=93000
Carrying Amount of Net Assets of R=603000
Recoverable amount=520000
Impairment loss=Carrying Amount-Recoverable amount
=603000-520000
=83000
iv. Allocation of Impairtment loss of T
Note:Impairtment loss will be first allocated to goodwill and then other Assets
Total Impairment loss =93000
less:Goodwill =(46000)
Impairment loss allocated to other Assets in their respectve ratio =47000
Allocation of Impairtment loss of R
Note:Impairtment loss will be first allocated to goodwill and then other Assets
Total Impairment loss =83000
less:Goodwill =(32000)
Impairment loss allocated to other Assets in their respectve ratio =51000
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