IAS 36 PRACTICE QUESTION Rebam 45 mins Rebam is an entity that regularly purchases new subsidiaries. On 30 June 2019, the entity acquired all the equity shares of Forecast Ltd for a cash payment of N$260 million. The net assets of Forecast on 30 June 2019 were N$180 million and no fair value adjustments were necessary upon consolidation of Forecast for the first time. On 31 December 2019, Rebam carried out a review of the goodwill on consolidation of Forecast for evidence of impairment. The review was carried out despite the fact that there were no obvious indications of adverse trading conditions for Forecast. The review involved allocating the net asset of Forecast into three cash-generating units and computing the value in use of each unit. The carrying values of the individual units before any impairment adjustments are given below. Unit A Unit B Unit C N$ million N$ million N$ million 5 Patents Property, plant and equipment Net current assets 60 30 40 20 25 20 85 55 60 Value in use of unit 72 60 65 It was not possible to meaningfully allocate the goodwill on consolidation to the individual cash- generating units, but all other net assets of Forecast are allocated in the table shown above. The patents of Forecast have no ascertainable market value but all the current assets have a market value that is above carrying value. The value in use of Forecast as a single cash-generating unit at 31 December 2020 is N$205 million. Required: (a) Explain what is meant by a cash-generating unit. (5 marks) (b) Explain why it was necessary to review the goodwill on consolidation of Forecast for impairment at 31 December 2019. (3 marks) (c) Explain briefly the purpose of an impairment review and why the net assets of Forecast were allocated into cash-generating units as part of the review of goodwill for impairment. (5 marks) (d) Demonstrate how the impairment loss in unit A will affect the carrying value of the net assets of unit A in the consolidated financial statements of Rebam. (5 marks) (e) Explain and calculate the effect of the impairment review on the carrying value of the goodwill on consolidation of Forecast at 31 December 2019. (7 marks) (Total = 25 marks)