Impairment of assets

Fresh Ltd has two retail businesses that represent separate cash generating units, Fresh Juice Bar and Fresh Salads. At 30 June 2019, the carrying amounts of the assets of the units, valued pursuant to the cost model, are as follows:

Fresh Juice Bar

Fresh Salads

$

$

Cash

18,000

14,000

Inventory

4,000

3,000

Fixtures and fittings

50,000

65,000

Accumulated depreciation fixtures and fittings

(45,000)

(15,000)

Equipment

65,000

90,000

Accumulated depreciation equipment

(30,000)

(30,000)

Motor vehicles

25,000

26,000

Accumulated depreciation motor vehicles

(13,000)

(8,000)

Goodwill

10,000

20,000

Total

84,000

165,000

The inventory is recorded at the lower of cost and net realisable value. The motor vehicles of Fresh Juice Bar have a fair value less costs to sell of $11,000, and motor vehicles of Fresh Salads have a fair value less costs to sell of $14,000.

On 30 June 2019, the directors of Fresh Ltd estimate that the fair value less cost to sell for Fresh Juice Bar and Fresh Salads amount to $50,000 and $140,000 respectively. The value in use of Fresh Juice Bar and Fresh Salads are estimated at $58,000 and $180,000 respectively.

Required:

Prepare a letter to the directors of Fresh Ltd, explaining how to calculate impairment losses for cash generating units, and how impairment losses are to be allocated between assets of the cash generating unit. Provide references to key paragraphs in AASB 136 to support your discussion.

In your letter, calculate the impairment loss to be recognised by Fresh Ltd for each of its cash generating units as at 30 June 2019, and determine how the impairment loss is to be allocated. Provide explanations throughout your calculations and workings, so that the directors understand how you are applying the requirements of AASB 136. Prepare the journal entries to recognise any impairment losses.

As you complete the letter, you also need to explain whether it is possible to reverse impairment losses in future periods. The directors believe that the fair value of both businesses is going to increase significantly in the next two years, as the shopping mall that the two outlets are in is expanding, which will attract a lot more business in the long run. Can any/all of the impairment losses recognised on 30 June 2019 be reversed in the future? Explain, with reference to key paragraphs in AASB 136.