You work in the finance department of Zobac Industrial plc (Zobac), a UK-listed company. You are preparing the financial statements for the year ended 31 October 2022, in accordance with International Financial Reporting Standards (IFRS). The financial controller has asked you to look at the carrying amount of some of Zobacs assets as at 31 October 2022 as the company is facing a number of challenges, including significant supplier price increases.

Firstly, Zobac intends to sell a piece of production equipment from its UK factory that is no longer required. Relevant information relating to the equipment is in Appendix 1.

Secondly, Zobac has a production site in Eastern Europe that has faced some recent financial difficulties. An impairment review has been carried out on the assets at that site and information from the review is in Appendix 2.

Finally, Zobac also holds a number of financial assets which may be impaired. Details are in Appendix 3.

QUESTIONS:

For the production equipment in Appendix 1:

analyse, with explanations and showing all workings, the options for measuring the fair value of the production equipment in accordance with IFRS 13 Fair Value Measurement and select which is the most appropriate;

calculate, with explanations, the amount the equipment should be measured at in the financial statements of Zobac at 31 October 2022; and

prepare any journal entries necessary.

(8 marks)

For the Eastern European production site in Appendix 2:

calculate, showing all workings, and any impairment occurring in respect of the year ended 31 October 2022;

prepare any journal entries necessary.

(7 marks)

For the financial assets in Appendix 3:

calculate, showing all workings, any impairment occurring in respect of the year ended 31 October 2022; and

prepare any journal entries necessary.

APPENDIX 2 (SECTION 3)

Information relating to the impairment review of the Eastern European site

The carrying amounts of the assets at the site, measured at historical cost, together with their fair values at 31 October 2022 were:

Carrying amount		Fair value
	000	000
Production line	160	*
Factory building	272	275
Intangible asset	80	*
Total non-current assets	512	500

* It was not possible to estimate a fair value for these assets on their own.

The estimated costs associated with the closure and sale of the whole site are:

000
Business reorganisation costs _	15
Legal costs	8
Transaction taxes	12
Redundancy costs	27

If the factory building was sold on its own, the estimated costs of disposal are

14,000.

The site has an estimated remaining useful life of five years. Cash flows are generated by the site as a whole and cannot be calculated for individual assets. Zobac uses a 6% discount rate.

The estimated cash flows for the site are as follows:

Year ending 31 October	2023 000	2024 000	2025 000	2026 000	2027 000
Proceeds from goods sold	200	200	190	190	190
Production costs	(90)	(90)	(85)	(85)	(85)
Interest paid	(5)	(5)	(5)	(5)	(5)
Net proceeds of asset disposal	-	-		-	35
	105	105	100	100	135
Discount rate (6%)	0.943	0.890	0.840	0.792	0.747

The remaining site assets are expected to be sold in October 2027.