QUESTION 4 PART A (20 marks) Osiris Agricultural Products Ltd (OAP) is one of the largest companies in Asia involved in the growing and processing of agricultural products. It is organised into three divisions which are regarded as separate cash-generating units of the company by HKAS 36"Impairment of Assets" to sell different quality levels of agricultural products. OAP had a head office (HO) and a research centre (RC). The RC is used by all the cash- generating units to improve quality of handling and processing of the agricultural products. Information on the carrying amounts of the three cash-generating units at 31 October 2020 is as follows: Premium 1,904,000 Fine 1,332,800 Economy 1,006,400 Because of downturn of economy, the management of OAP decided to undertake an impairment test of the assets of the entity. Some of the information used in that process was as follows: (1) As the HO interacts equally with the three cash-generating units, the assets of the HO were allocated evenly to the three units. In relation to the RC, there was no reasonable way to allocate its assets to the three cash-generating units. Neither the HO nor the RC generates cash inflows. The assets of these corporate assets at 31 October 2020 were as follows: HO RC 244,800 136,000 (ii) The recoverable amounts of the three cash-generating units and entity as a whole as at 31 October 2020 were assessed to be: Premium Fine Economy OAP $ 2,108,000 1,360,000 1,020,000 4,454,000 Required: (a) Describe, using examples, circumstances that may indicate that a company's assets may have been impaired. You should use examples other than those related to OAP in your answer. (5 marks) (b) Describe the process and determine the impairment loss of OAP with respect of each CGU and each corporate asset separately if exists, with detailed calculation, if any, to be recognised by OAP at 31 October 2020 and prepare journal entries to record the impairment loss. Round your figures to the nearest dollar. (15 marks) QUESTION 4 PART B (5 marks) The auditors of Final Victory Ltd (FVL) have conducted an annual audit of the company after 31 December 2020, the accounting year end of the company. Up to 31 January 2021 (before the authorization date of the financial statements), two errors are discovered: i) inventories to the value of $11,050 that had been recognized as sold during 2019 was incorrectly included in inventories as at 31 December 2019. ii) money receipt from a customer with a value of $5,950 on 31 December 2019 for service to be delivered on 2 January 2020 was recognized as a revenue in 2019. The following financial statements of FVL for 2019 (as reported) and 2020 (draft) are available: Statements of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2020 2019 $ $ Revenue 176,800 124,950 Cost of sales (147,050) (90,950) Gross profit 29,750 34,000 Operating expenses (14,450) (16,150) Profit before tax 15,300 17,850 Tax (4,590) (5,355) Profit after tax 10,710 12,495 2019 Extract on Statements of Changes in Equity (Retained earnings) for the year ended 31 December 2020 $ $ Balance as at 1 January 46,495 34,000 Total comprehensive income 10,710 12,495 Balance as at 31 December 57,205 46,495 The tax rate was 30% for 2019 and 2020. No dividends have been declared or paid. FVL has no items of other comprehensive income since the date of incorporation. Required: Prepare the extracts on statement of changes in equity for 31 December 2020 of FVL to capture the adjustment of two errors. END OF QUESTION 4