a) Ltd started using an oil rig 15 years ago. A new law has been enacted to ensure that the oil rig is dismantled when the oil runs out in 8 years time. The cost of dismantling the rig is estimated at K120m and the discount rate is 13%. Calculate the provision and show the extracts in the statement of financial position at the end of years 1 to 8 in accordance with the requirements of IAS 37 Provisions, Contingent liabilities and contingent assets.

8 Mark

b) A Cash Generating Unit (CGU) had the following assets on 1st January 2018:

Goodwill K50, 000;

Office block K250,000 depreciated over 10 years on a straight line basis;

Machinery K550, 000 depreciated at 25% on a straight line basis;

Engines K90,000 depreciated at 35% on reducing balance;

Equipment K320.000 depreciated at 30% on reducing balance.

Fire in the premises led to a reduction in the recoverable amount of the CGU. After an assessment the office block had a recoverable amount of K230, 000. Engines had a net realizable value of K50, 000 and the whole CGU was expected to generate cash flows of K350, 381.57 over the next three years. The CGU could however be sold for K800, 000 after incurring costs of K60, 000. The company uses a discount rate of 15%.

Required

i) Calculate the value in use of the CGU and the carrying amounts of all the assets at the end of 2018.

ii) During 2019 a reduction in interest rates led to a reversal of impairment. The total CGU is now expected to be worth K1, 300, 000. What will the carrying amounts of the assets in the CGU be and what will the total carrying amounts be at the end of 2019?