At 30 June 2019, Boxes Ltd reported the following assets. Land $50 000 Plant 250
ID: 2527795 • Letter: A
Question
At 30 June 2019, Boxes Ltd reported the following assets.
Land
$50 000
Plant
250 000
Accumulated Depreciation
(50 000)
Goodwill
8 000
Inventories
40 000
Cash
2 000
All assets are measured using the cost model.
At 30 June 2019, the recoverable amount of the entity, considered to be a single CGU, was $272 000.
For the period ending 30 June 2020, the depreciation charge on plant was $18 400. If the plant had not been impaired the charge would have been $25 000.
At 30 June 2020, the recoverable amount of the entity was calculated to be $13 000 greater than the carrying amount of the assets of the entity. As a result, Boxes Ltd recognised a reversal of the previous year’s impairment loss.
Required
Prepare the journal entries relating to impairment at 30 June 2019 and 2020.
Land
$50 000
Plant
250 000
Accumulated Depreciation
(50 000)
Goodwill
8 000
Inventories
40 000
Cash
2 000
Explanation / Answer
Impairment in 30 June 2019
Recoverable amount = $272,000
Carrying Value = $50,000 + $250,000 - $50,000 + 8,000 + $40,000 + $2,000 = $300,000
Since the carrying value exceeds the Recoverable amount Impairment of $300,000 - $272,000 = $28,000 needs to be recognized.
Of this $8,000 will directly be impaired from goodwill. The remaining $20,000 will be reduced on prorata basis from the other assets excluding cash and inventory in the following manner:
Total Other Assets excluding cash and inventory = 2,90,000
Impairment on Land = 50,000/250,000 X 20,000 = 4,000
Impairment on Plant = 200,000/250,000 X 20,000 = 16,000
The Journal Entry would be:
Impairment in 30 June 2020
The Carrying Amount of the entity on 30 Jun 2019 would be 272,000 - 18,400 = $253,600
Impairment to be reversed is 13,000. Goodwill once impaired, cannot be reversed as per IAS36. Hence this reversal will be done on Land and Plant.
On Pro Rata Basis we would divide this as:
Plant = $200,000/$250,000 X 13,000 = 10,400
Land = 13,000 - 10,400 = $2,600
However,
If Plant had not been impaired its carrying value would have been $250,000 - $50,000 - $25,000 = $175,000
The Current Carrying Valye of Plant is $250,000 - $50,000 - $16,000 - $18,400 = $165,600
Hence the maximum reversal that can be made on Plant is $9,400
Hence the Remaining $3,600 is reversed on land(maximum reversal on land is $4,000)
Hence The reversal entry is:
Debit Credit 30-Jun-19 Impairment Loss 28,000 Goodwill 8,000 Land 4,000 Plane 16,000Related Questions
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