Question
Canadian Accounting: Conditions of impairment have been identified. The company has established that there are two CGUs: the merchandising division and the construction division. The
Canadian Accounting:
Conditions of impairment have been identified. The company has established that there are two CGUs: the merchandising division and the construction division. The assets of the merchandising division include Building 1 and Equipment 1 and 3. The assets of the construction division include Building 2 and the remaining equipment. Information on each of these assets is provided below:
| Asset | Residual V alue | Carrying Value at Dec 31, 20x5 |
| Building 1 | $500,000 | $4,700,000 |
| Building 2 | 200,000 | 3,236,752 |
| Equipment 1 | 100,000 | 433,500 |
| Equipment 3 | 40,000 | 223,125 |
| Equipment 4 | 100,000 | 595,000 |
| Equipment 5 | 30,000 | 306,000 |
| Equipment 6 | - | 585,706 |
| Equipment 7 | - | 555,000 |
The following additional data has been provided.
| Merchandising Division | Construction Division | |
| Fair value of assets | 5,200,000 | $5,000,000 |
| Estimated costs to sell | 500,000 | 450,000 |
| Future cash flow budget | ||
| 20x6 | $500,000 | $250,000 |
| 20x7 | 500,000 | 350,000 |
| 20x8 | 500,000 | 450,000 |
| 20x9 | 500,000 | 500,000 |
| 20x10 20x24 | 400,000 | 600,000 |
The relevant discount rate is 6%.
Required For each of the two CGUs, prepare the impairment journal entry (if any) at December 31, 20x5. Assume the company follows IFRS.
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Practical Auditing
Authors: Ernest Evan Spicer, Ernest Charles Pegler
17th Edition
0406678014, 9780406678010
