a) Explain giving an example what is meant by the impairment of an asset. b) ABC Limited
Question:
a) Explain giving an example what is meant by the impairment of an asset.
b) ABC Limited runs a unit that suffers a massive drop in income due to the failure of its technology on 1 January 2019. The following carrying values were recorded in the books immediately prior to the impairment:
$'000
Goodwill 30,000
Technology 10,000
Patents 20,000
Land 100,000
Buildings 60,000
Other net assets 80,000
The recoverable value of the unit is estimated at $234,000,000. The technology is worthless, following its complete failure. The value of patents is determined to be $14,000,000 and one building with a carrying value of $10,000,000 is now known to be valued at only $4,000,000.
The other net assets include inventory, receivables and payables. It is considered that the book value of other net assets is a reasonable representation of its net realizable value.
REQUIRED: Calculate the carrying amounts of the assets above at 31 January 2020 after applying any impairment losses.
c) Brian Resorts Incorporated (BRI) has many hotels that have been closed because of the Covid-19 pandemic. At the end of the financial year ended 31 March 2020, the hotels are still closed. Before the pandemic the hotels had a carrying value of US$640 million.
Are the hotels impaired? Discuss briefly