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PART D: The following scenario relates to questions 7 & 8. Pharmtech Ltd (Pharmtech) is a healthcare products manufacturing company listed in Hong Kong reporting financial statements for the year ended 30 April 2020. 2019.4.39 On 30 April 2020, the government suspended the licence to produce and sell Pain killer the key products of Pharmtech. At the date of the decision, the carrying amount of total assets of the division was $267.9 million. Details provided below. CA 267900.000 Extracts on statement of financial position as at 30 April 2020: $'ooo Notes Property, plant and equipment 188,200 Carrying amount with accumulated depreciation of $37.5 million Acquired intangibles 16,700 Patents and licence after accumulated amortization of $5 million Inventory 21,100 Carried at below net realizable value Receivables 35,800 At fair value Bank 6.100 At fair value Total assets 267.900 Pharmtech decided to sell some of the specialist assets and redeploy the rest elsewhere within the division. Pharmtech got the bankers to produce a valuation of the division. The bankers estimated the division could sale for $250 million, leaving Pharmtech with $242 million after fees and other costs. Pharmtech also prepared the below schedule of the estimated net cash inflows for division over a 5-year period. The appropriate risk-adjusted pre-tax discount rate was determined to be 9.5% for the value in use. You must use the below present value factors to determine the value in use as much as you can. PVF1, 9.5% = 0.9132 PVF4, 9.5% = 0.6955 PVF2, 9.5% = 0.8340 PVF5, 9.5% = 0.6352 PVF3, 9.5% = 0.7616 Estimated pre-tax cash flows for the division Year 1 Year-end cash flow 30 April 2021 2 Year-end cash flow - 30 April 2022 3 Year-end cash flow 30 April 2023 4. Year-end cash flow - 30 April 2024 5 Year-end cash flow - 30 April 2025 $'ooo 63,600 66,075 69,630 72,366 66,800 Required: Q7: Discuss the purpose of impairment test and evaluate whether it is necessary for Pharmtech to have impairment on the division and determine the carrying amount of each asset within the division after the impairment as at 30 April 2020. (15 marks) Q8: Prepare journal entries for the impairment of the division as at 30 April 2020. (5 marks) END OF PAPER PART D: The following scenario relates to questions 7 & 8. Pharmtech Ltd (Pharmtech) is a healthcare products manufacturing company listed in Hong Kong reporting financial statements for the year ended 30 April 2020. 2019.4.39 On 30 April 2020, the government suspended the licence to produce and sell Pain killer the key products of Pharmtech. At the date of the decision, the carrying amount of total assets of the division was $267.9 million. Details provided below. CA 267900.000 Extracts on statement of financial position as at 30 April 2020: $'ooo Notes Property, plant and equipment 188,200 Carrying amount with accumulated depreciation of $37.5 million Acquired intangibles 16,700 Patents and licence after accumulated amortization of $5 million Inventory 21,100 Carried at below net realizable value Receivables 35,800 At fair value Bank 6.100 At fair value Total assets 267.900 Pharmtech decided to sell some of the specialist assets and redeploy the rest elsewhere within the division. Pharmtech got the bankers to produce a valuation of the division. The bankers estimated the division could sale for $250 million, leaving Pharmtech with $242 million after fees and other costs. Pharmtech also prepared the below schedule of the estimated net cash inflows for division over a 5-year period. The appropriate risk-adjusted pre-tax discount rate was determined to be 9.5% for the value in use. You must use the below present value factors to determine the value in use as much as you can. PVF1, 9.5% = 0.9132 PVF4, 9.5% = 0.6955 PVF2, 9.5% = 0.8340 PVF5, 9.5% = 0.6352 PVF3, 9.5% = 0.7616 Estimated pre-tax cash flows for the division Year 1 Year-end cash flow 30 April 2021 2 Year-end cash flow - 30 April 2022 3 Year-end cash flow 30 April 2023 4. Year-end cash flow - 30 April 2024 5 Year-end cash flow - 30 April 2025 $'ooo 63,600 66,075 69,630 72,366 66,800 Required: Q7: Discuss the purpose of impairment test and evaluate whether it is necessary for Pharmtech to have impairment on the division and determine the carrying amount of each asset within the division after the impairment as at 30 April 2020. (15 marks) Q8: Prepare journal entries for the impairment of the division as at 30 April 2020. (5 marks) END OF PAPER
