Question 5 [15 marks]

Impairment of assets

Blizzard Ltd has a division that represents a separate cash generating unit. At 30 June 2017, the carrying amounts of the assets of the division, valued pursuant to the cost model, are as follows:

Assets:	$
Cash	32,000
Motor vehicles	300,000
Less: accumulated depreciation	(120,000)
Plant and equipment	200,000
Less: accumulated depreciation	(50,000)
Land	600,000
Inventory	5,000
Accounts receivable	13,000
Patent	60,000
Goodwill	15,000
Carrying amount of cash generating unit	1,055,000

The receivables were regarded as collectable, and the inventory is measured at the lower of cost and net realisable value. The patent has a fair value less costs to sell of $50,000, and the land has a fair value less costs to sell of $520,000.

The directors of Blizzard estimate that, at 30 June 2017, the fair value less costs to sell of the division amounts to $820,000, while the value in use of the division is $900,000.

Required:

Determine how Blizzard Ltd should account for the results of the impairment test at 30 June 2017, and prepare any necessary journal entries. Show all workings, explanations and provide references to the relevant accounting standard to support your answer.

Marking Guide - Question 5	Max. marks awarded
Application of the impairment test and allocation of impairment losses where necessary, with explanations, workings and references	12
Journal entries	3