Exercise 12-21

The following is net asset information for the Dhillon Division of Klaus Inc.:

NET ASSETS

as at December 31, 2020

(in millions)Book Value

Fair Value

Excluding

Goodwill

Cash

$ 51

$ 51

Accounts receivable

215

215

Property, plant, and equipment (net)

2,600

2,800

Goodwill

200

Less: Notes payable

(2,600

)(2,600

)Net assets

$ 466

The purpose of the Dhillon Division (also identified as a reporting unit or cash-generating unit) is to develop a nuclear-powered aircraft. If successful, travelling delays that are associated with refuelling could be greatly reduced, and operational efficiency would increase significantly.

To date, management has not had much success and is deciding whether a writedown is appropriate at this time. Management has prepared the following estimates for the reporting unit or cash-generating unit:

1.Undiscounted future net cash flows are approximately $405 million.

2.Future value in use is approximately $464 million.

3.Sale of the unit would yield $340 million and selling costs would total $3 million.

a. Under ASPE, determine if there is any impairment and prepare any necessary entry on December 31, 2020

b. On December 31, 2021, it is estimated that the reporting unit's fair value has increased to $405 million. Under ASPE, prepare the journal entry, if any, to record the increase in fair value

c. Under IFRS, determine if there is any impairment and prepare any necessary entry on December 31, 2020.

d. On December 31, 2021, it is estimated that the cash-generating unit's fair value has increased to $405 million. Under IFRS, prepare the journal entry, if any, to record the increase in fair value.