Audrey Corp. is assessing one of its factories for impairment as of December 31, 2020 due to a

competitor launching a more superior product rivaling the product line being produced by the factory.

The factory produces one of the company's product line and is considered a separate cash generating

unit from the rest of its other factories producing other product lines. The assets in the factory

included the Land (Cost: P1M); Building (Cost: P6M) and an Equipment (ABC) (Cost: P2M) which were

acquired in January of 2017 (when the product line has been launched). Another Equipment (DEF)

(Cost: P3M) was acquired in January of 2019 (when the product line was expanded). The building had

a useful life of 20 years while the equipment were estimated to have a useful life of 10 years. Assets

are being depreciated under the straight-line method to zero residual value.

Individual cash flows related to each asset comprising the factory cannot be ascertained thus you

suggested that the company treat the factory as a single cash generating unit for the purpose of

applying PAS 36, Impairment of assets. A cash generating unit as defined by the said standards is the

smallest identifiable group of assets that generates cash inflows that are largely independent of the

cash inflows from other assets or group of assets.

As a result of the introduction of a more superior product by the competitor, the client ascertained

that the product being currently produced by the factory can now only generate cash flows for the

company for the next five years, after which the assets in the factory can be disposed for a total of

lump-sum of P1.4M. The following presents the estimates of the said cash flows (pre-tax):

Year Revenues Expense, excluding

Depreciation2021 P4,200,000 P1,680,0002022 3,800,000 1,910,0002023 3,200,000 2,050,0002024 2,400,000 1,610,0002025 1,300,000 800,000The fair value of the group of assets net of estimated disposition costs was determined to be P6.5M.

The prevailing pre-tax discount rate appropriate for this analysis is 6% while post-tax discount rate is

at 8%.

Requirements:

1. What is the value in use of the group of assets?

2. How much is the recoverable amount of the group of assets?

3. How much is the impairment loss?

4. Assuming that the land had a fair market value less cost to sell at P1.2M what is the carrying value

of the building after impairment loss recognition?