Question
Your advice has been requested by the accountant of Magic plc on the issues below as the draft financial statements for the year to 31
Your advice has been requested by the accountant of Magic plc on the issues below as the draft financial statements for the year to 31 December 2017 are being prepared.
(i) Magic plc has an administration building which cost MUR 600,000 on 1 January 2008 and is being depreciated over 50 years, based on the IAS 16 cost model. Magic plc no longer needs the building and entered into an agreement to lease the building out to another company on 1 July 2017. Magic plc applies the fair value model under IAS 40 Investment property and the fair value of the building was judged to be MUR 800,000 on 1 July 2017. This valuation had not changed at 31 December 2017.
(ii) Magic plc owns another building which has been leased out for a number of years. It had a fair value of MUR 550,000 at 31 December 2016 and MUR 740,000 at 31 December 2017.
(iii) Magic plc has a retail business which is treated as a separate cash generating unit and which has suffered badly during the recession. The carrying amounts of the assets comprising the retail business are:
$'000
Building 900
Plant and equipment 300
Inventory 70
Other current assets 130
Goodwill 40
On 31 December 2017, an impairment review has suggested that the recoverable amount of the cash generating unit is estimated at MUR 1.3m.
Required
a. What is the amount of the revaluation surplus that will be recognised in respect of the building in (i)?
b. In respect of the building in (ii), how will the increase in value from MUR 550,000 to MUR 740,000 be accounted for?
c. When an impairment review is carried out, a potentially impaired asset is measured at what amount?
d. What will be the carrying amount of the inventory after the impairment loss in (iii) has been accounted for?
e. What will be the carrying amount of the building after the impairment loss has been accounted for?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started