Question
Impairment of assets Flash Ltd has a division that represents a separate cash generating unit. At 30 June 2018, the carrying amounts of the assets
Impairment of assets Flash Ltd has a division that represents a separate cash generating unit. At 30 June 2018, the carrying amounts of the assets of the division, valued pursuant to the cost model, are as follows: Assets: $ Cash 143,000 Plant and equipment 750,000 Less: accumulated depreciation (250,000) Land 300,000 Inventory 220,000 Accounts receivable 163,000 Patent 90,000 Goodwill 30,000 Carrying amount of cash generating unit 1,446,000 The receivables were regarded as collectable, and the inventorys fair value less costs to sell was equal to its carrying amount. The patent has a fair value less costs to sell of $85,000, and the land has a fair value less costs to sell of $270,000. The directors of Flash estimate that, at 30 June 2018, the fair value less costs to sell of the division amounts to $1,360,000, while the value in use of the division is $1,270,000. As a result, management increased the depreciation of the plant and equipment from $50,000 p.a. to $56,000 for the year ended 30 June 2019. By 30 June 2019, the recoverable amount of the cash generating unit was calculated to be $30,000 greater than the carrying amount of the assets of the unit. Required: Determine how Flash Ltd should account for the results of the impairment test at 30 June 2018 and 30 June 2019, and prepare any necessary journal entries. Show all workings and provide references to the relevant accounting standard to support your answer. Marking Guide - Question 5 Max. marks awarded Journal entries, calculations and workings for 2018 8.5 Journal entries, calculations and workings for 2019 8.5 Rationale back to top This assessment task will assess the following learning outcome/s: be able to prepare basic financial statements for reporting entities. be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based. be able to explain the form and content of financial statements. be able to interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.
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