QUESTION THREE The objective of IAS 36 Impairment of assets is to prescribe the procedures that an entity applies to ensure that its assets are not impaired. Telepath acquired an item of plant at a cost of K800,000 on 1 January 2017 that is used to produce and package pharmaceutical pills. The plant had an estimated residual value of K50,000 and an estimated life of five years, neither of which has changed. Telepath uses straight-line depreciation. On 31 December 2019, Telepath was informed by a major customer (who buys products produced by the plant) that it would no longer be placing orders with Telepath. Even before this information was known, Telepath had been having difficulty finding work for this plant. It now estimates that net cash inflows earned from the plant for the next three years will be: K year ended: 31 December 2020 220,000 31 December 2021 180,000 31 December 2022 170,000 On 31 December 2022, the plant is still expected to be sold for its estimated realisable value. Telepath has confirmed that there is no market in which to sell the plant at 31 December 2019. Telepaths cost of capital is 10% and the following values should be used: K value of K1 at: end of year 1 0.91 end of year 2 0.83 end of year 3 0.75 Required: (a) Explain what is meant by assets that may form a cash generating unit and how an impairment review should be done for a cash generating unit. [5 Marks] (b) Calculate and explain the carrying amounts of the assets above at 31 December 2019 after applying any impairment losses. Calculations should be to the nearest 1,000. [10 Marks] [TOTAL: 15 Marks]

Assignment Two Dee May 4th.pdf Adobe Reader 66.7% QUESTION THREE The objective of IAS 36 Impairment of assets is to prescribe the procedures that an entity applies to ensure that ils assets are not impaired. Telepath acquired an item of plant at a cost of K800,000 on 1 January 2017 that is used to produce and package pharmaceutical pills. The plant had an estimated residual value of K50,000 and an estimated life of five years, neither of which has changed. Telepath uses straight-line depreciation. On 31 December 2019, Telepath was informed by a major customer (who buys products produced by the plant) that it would no longer be placing orders with Telepath. Even before this information was known, Telepath had been having difficulty finding work for this plant. It now estimates that net cash inflows eamed from the plant for the next three years will be: K year ended: 31 December 2020 31 December 2021 220,000 180,000 170,000 31 December 2022 On 31 December 2022, the plant is still expected to be sold for its estimated realisable value. Telepath has confirmed that there is no market in which to sell the plant at 31 December 2019. Telepath's cost of capital is 10% and the following values should be used: K value of K1 at: end of year 1 0.91 end of year 2 0.83 end of year 3 0.75 Required: (a) Explain what is meant by assets that may form a cash generating unit and how an impairment review should be done for a cash generating unit. [5 Marks) (b) Calculate and explain the carrying amounts of the assets above at 31 December 2019 after applying any impaiment losses Calculations should be to the nearest 1.000 [10 Marks] [TOTAL: 15 Marks]