Vertigo Ltd has two divisions, Concept and Express. Each of these is regarded as
ID: 2526722 • Letter: V
Question
Vertigo Ltd has two divisions, Concept and Express. Each of these is regarded as a separate CGU (Cash Generating Unit).
At 31 December 2019, the carrying amounts of the assets of the two divisions were as follows.
The receivables were regarded as collectable, and the inventories’ fair value less costs of disposal was equal to its carrying amount. The patent had a fair value less costs of disposal of $220. The plant at, Concept, was depreciated at $300 p.a. The plant at, Express, was depreciated at $250 p.a. Vertigo Ltd undertook impairment testing at 31 December 2019, and determined the recoverable amounts of the two divisions to be as follows.
As a result, management increased the depreciation of the Concept plant from $300 to $350 p.a. for the year 2019.
By 31 December 2020, the performance in both divisions had improved, and the carrying amounts of the assets of both divisions and their recoverable amounts were as follows
Required
Determine how Vertigo Ltd should account for the results of the impairment tests at both 31 December 2019 and 31 December 2020.
Concept ($) Express ($) Plant 1500 1200 Accumulated Depreciation (650) (375) Patent 240 Inventories 54 75 Receivables 75 82 Goodwill 25 20Explanation / Answer
Workings for Dec 2019 Concept ($) Express ($) Plant 1500 1200 Accumulated Depreciation -700 -375 Patent 240 Receivables 75 82 Goodwill 25 20 Total Carrying Value 1140 927 Recoverable amt 1044 990 Impairment loss 96 NIL Imp. Accounting for Dec 2019 impairment Depreciation-plant 50 Accumulated Depreciation 50 Impairment loss-Patent(240-220) 20 Impairment-Plant(800/825*76) 74 Impairment loss-Goodwill(25/825*76) 2 Impairment allowance 96 NOTE: Inventory is left out of impairment test & Receivables fully collectable Workings for Dec 2020 Concept ($) Express ($) Total Carrying Value 1322 1433 Recoverable amt 1502 1520 Impairment loss NIL Imp. NIL Imp. Dec 2020 Journal entry Impairment allowance(96-2) 94 Reversal of impairment loss 94 (Impairment loss except for Goodwill reversed)
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