Lecture Illustration

One of the cash-generating units of Broome Ltd is associated with the manufacture of wine barrels. At 30 June 2015, Broome Ltd believed, based on analysis of economic indicators, that the assets of the unit were impaired. The carrying amounts of the assets and liabilities of the unit at 30 June 2015 were:

Buildings $420 000

Accumulated depreciation buildings* (180 000)

Factory Machinery 220 000

Accumulated depreciation machinery** (40 000)

Goodwill 15 000

Inventory 80 000

Receivables 40 000

Allowance for doubtful debts (5 000)

Cash 20 000

Accounts Payable 30 000

Loans 20 000

* Depreciated at $60 000 p.a

** Depreciated at $45 000 p.a

Broome Ltd determined the value in use of the unit to be $535 000. The receivables were considered to be collectable, except those considered doubtful. The company allocated the impairment loss in accordance with IAS 36.

During the 2015 2016 period, Broome Ltd increased the depreciation charge on buildings to $65 000 p.a., and to $50 000 p.a. for factory machinery. The inventory on hand at 1^st July 2015 was sold by the end of the year. At 30^th June 2016, Broome Ltd, because of a return in the market to the use of traditional barrels for wines and an increase in wine production, assessed the recoverable amount of the cash generating unit to be $30 000 greater than the carrying amount of the unit. As a result, Broome Ltd recognised a reversal of the impairment loss.

Required:

1. Prepare the journal entries for Broome Ltd at 30 June 2015 and 2016.
2. If the recoverable amount of the buildings at 30 June 2016 was $175 000, how would this change the answer to requirement 1?