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Practising Questions On Impairment

The document contains three questions regarding impairment testing and calculations under IFRS. The first question involves determining if an asset is impaired based on its carrying amount, fair value less costs to sell, and value in use. The second question involves allocating an impairment loss between tangible assets and goodwill in an acquired business. The third question involves calculating the reversal of a previous impairment loss.

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53 views2 pages

Practising Questions On Impairment

The document contains three questions regarding impairment testing and calculations under IFRS. The first question involves determining if an asset is impaired based on its carrying amount, fair value less costs to sell, and value in use. The second question involves allocating an impairment loss between tangible assets and goodwill in an acquired business. The third question involves calculating the reversal of a previous impairment loss.

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Sesethu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PRACTISING QUESTIONS ON IMPAIRMENT

Q1
Zondi Ltd extracts natural gas and oil near East London Industrial Development Zone. One of
Zondi’s assets is a drilling platform in the nearby sea, a few kilometres away from its head
office. It is required by legislation in South Africa to remove and dismantle the platform at
the end of its useful life.
Accordingly, Zondi has included an amount in its accounts for removal and dismantling
costs, and is depreciating this amount over the platform’s expected useful life.
Zondi Ltd is carrying out an exercise to establish whether there has been an impairment of
the platform.
(a) Its carrying amount in the statement of financial position is R6m.
(b) Zondi Ltd has received an offer of R5.6m for the platform from another oil company.
The bidder would take over the responsibility (and costs) for dismantling and
removing the platform at the end of its life.
(c) The present value of the estimated cash flows from the platform’s continued use is
R6.6m ( before adjusting for dismantling costs).
(d) The carrying amount in the statement of financial position for the provision for
dismantling and removal is currently R1.2m.
Required
i) Determine the value of the drilling platform in the statement of financial position.
ii) Determine if there is an impairment loss and indicate the amount thereof.

Q2
A company has acquired another business for R4.5m: tangible assets are valued at R4.0m and
goodwill at R0.5m.
An asset with a carrying value of R1m is destroyed in a terrorist attack. The asset was not
insured. The loss of the asset, without insurance, has prompted the company to assess
whether there has been an impairment of assets in the acquired business and what the amount
of any such loss is.
The recoverable amount of the business (a single cash generating unit) is measured as R3.1m.

Required:

1
Indicate by how much is the CGU impaired and how to allocate the impairment loss to both
tangible assets and goodwill in the newly acquired business.

Q3
A cash generating unit (CGU) comprising a factory, plant and equipment etc and associated
purchased goodwill becomes impaired because the product it makes is overtaken by a
technologically more advanced model produced by a competitor. The recoverable amount of
the CGU falls to R60m, resulting in an impairment loss of R80m, allocated as follows:
CA before CA after
impairmen impairmen
t t
Rm Rm
Goodwil
l 40 0
Patent (with no market value) 20 0
Tangible non-current assets (market value R60m) 80 60
Total 140 60

After three years, the company makes a technological breakthrough of its own, and the
recoverable amount of the CGU increases to R90m. The carrying amount of the tangible non-
current assets had the impairment not occurred would have been R70m.
Required:
Calculate the reversal of the impairment loss.

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