Impairment Quiz Questions Essay

1.When should an entity conduct an hindrance test? (2 Marks)Assets that are consider to have uncertain carrying standards must be tested every fragment for impairment.Goodwill acquired in a business combinationIntangible assets with an indefinite useful lifeIntangibles non yet ready for useImpairment testing of each(prenominal) other assets is required only if on that point is an indication that they might be impaired due to chargets such as the economic and legal surround and market values etc.2.How is an impairment test undertaken? (2 Marks)The test involves comparing the carrying amount of an assets or CGU with its retrievable amount. The recoverable amount is the higher of fair value less cost to sell and it value in use.3.What is value in use? (1 Mark)Value in use is the present value of future interchange flows expect to be derived from an asset or a CGU.4.How is value in use for a immediate payment generating whole reason? (2 Marks)It is a professional estimate bas ed on past cash inflows and expected future cash inflows.5.What is an impairment passage? (1 Mark)The loss of future economic benefit as the amount in the balancesheet for the asset or CGU exceeds it recoverable amount.6.What is a cash-generating unit? (1 Mark)A CGU is the smallest identifiable group of assets that bring backs cash inflows that are largely independent of the cash inflows of other assets or groups of assets. CGU assets usually cannot be tested individually.7.How are corporate assets tested for impairment? (2 Marks)As they do not independently generate cash flows they are allocated to CGU on a reasonable or consistent basis. The deal of corporate assets is therefore tested along with the assets of the CGU to which it has been allotted.8.Supersatumas grows citrus fruit on a number of orchards in the Perth Hills. This fruit is then processed into fruit juice and other products at their cannery. These products are then sold to the public via their bowed stringed in strument of Jucymarket stores. How many cash generating units would the company have? Why? (2 Marks)3 if there is an active market for the issue of each stage. The stages being the fruit of the orchards, the processed products in their cannery and the juice sold in their stores. This is true all the same if all or part of the output produced is used internally.9.In allocating an impairment loss for a cash generating unit which of the following assets would not be given a portion of the loss land machinery inventory manufacturing certify receivables? Why? (1 Mark) inscription and accounts receivable. AASB 136 para 2 states that this standard does not apply to them as they are already covered (impaired) by other standards such as allowance for doubtful debts.10.In allocating an impairment loss for a CGU the carrying amount of anyindividual asset must not be reduced below what framing? (1 Mark)The highest of it fair-value less cost to sell and its value in use or below zero.11.If a portion of an impairment loss for a CGU cannot be allocated to one of the units assets because it will breach AASB 136 divide 105 what happens to that portion? (1 Mark)It is allocated pro-rata to the other assets of that unit (group of units) that can be impaired further.12.Timbertown Ltd processes pine trees grown on its own plantations in its timber mills. The milled timber is then made into outdoor furniture for sales event to the public. Is it possible for Timbertown Ltd to have more than CGU? (2 Marks)Yes. If there is an active market for the output of each stage. This is true even if all or part of the output produced is used internally.13.Gumtree Ltd has inflexible that its ginger snap ware course of instruction is a CGU. The carrying amounts of the net assets of the division at 30 June 2013 areFactory (net)$310 000Land200 000Equipment (net)120 000Inventory75 000Receivables32 000Accounts Payable(17 000)Do not impair liabilitiesGumtree Ltd has calculated the value in u se of the division to be $680 000.RequiredDetermine if an impairment loss exists for the picnic ware division. Show all workings. (1 Mark)310000 + 2000000 + 120000 + 75000 + 32000 = 737000 Carrying amount assets 680 000 Value in useImpairment loss = 5700014.Silkyoak Ltd has determined that its nursery division is a CGU. The carrying amounts of the net assets of the division at 30 June 2013 areLand80 000Propagating Sheds48 000Sales great power 25 000Equipment (net)56 000Inventory35 000Receivables19 000Accounts Payable(26 000)Mortgage Loan(50 000)Silky Oak Ltd has calculated the value in use of the division to be $327 000.RequiredDetermine if an impairment loss exists for the nursery division. Show all workings. (1 Mark)80, 000 + 48000 + 25000 + 56000 + 35000 + 19000 = 236000 Carrying amount 327000 Value in useNO Impairment loss15.Hovea Ltd has determined that its transport division has suffered an impairment loss of $52 000 for the year ended 30 June 2013. At that reckon the carryi ng amount of the divisions assets were$Receivables 31 000Inventory 18 000Land150 000Trucks (net)250 000Servicing Unit 50 000Cannot allocate to receivables and inventoryRequiredAllocate the loss across the assets of the CGU in accordance with AASB 136, paragraph 104. Show all workings. (3 Marks) You can drop to 150 450CA tryst New CA Land 150000 (150000 450000) 17333 132667 Truck 250000 (250000 450000) 28889 221111 Service Unit 50000 (50000 450000) 5778 44222 450000Round to nearest dollar from 0.5016.Tuart Ltd has determined that its retail division has suffered an impairment loss of $37 000 for the year ended 30 June 2013. At that date the carrying amount of the divisions assets were$Inventory 92 000 expose Fittings (net) 40 000Land100 000Buildings180 000Additionally, the company has corporate assets expenditure $150 000, one third of which have been allocated to the retail division.RequiredAllocate the loss across the assets of the CGU in accordance with AASB 136, paragraph 104. Show all workings (3 Marks)CA Allocation New CA Shop fittings 40000 (40000 370000) 4000 36000 Land100000 (100000 370000) 10000 90000 Building 180000 (180000 370000) 18000 162000 Corporate O/H 50000 (50000 370000) 37000017.Peppermint Ltd has determined that its orchard division has suffered an impairment loss of $42 000 for the year ended 30 June 2013. At that date the carrying amount of the divisions assets were$Inventory 21 000Land200 000Fruit Trees114 000Reticulation Systems 36 000Goodwill 60 000RequiredAllocate the loss across the assets of the CGU in accordance with AASB 136, paragraph 104 and prepare the journal entry to record the loss. Show all workings. (2 Marks)Goodwill 60000 42000 = 18000 remaining state of grace201330 June Impairment loss 42000 Accumulated impairment losses seemliness 4200018.Can an impairment loss, once recorded, be reversed? (2 Marks)Yes an impairment loss recognised in previous geological period that no longer exists can be reversed in th e current year. However an impairment of goodwill cannot be reversed.