ACCT20002 Lecture Notes - Lecture 7: Market Capitalization, Impaired Asset, Book Value

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pinkporcupine846

7 Sep 2018

School

University of Melbourne

Department

Accounting

Course

ACCT20002

Professor

All

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Para 6: de nition: an impairment loss is the amount by which the carrying amount of an asset or cash- generating unit exceeds its recoverable amount. Carrying amount is the amount in the rm"s balance sheet. Its fair value less costs of disposal; and. Value in use (viu) - the present value of the future cash ows expected to be derived from an asset or cgu. Para 59: if, and only if, the recoverable amount (ra) of an asset is less than its carrying amount (ca), the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss: so if ca > ra then: Identify impairment loss (measured by ca - ra) Write down the asset to its ra. Aasb 136: testing for impairment: rationale for impairment. Entities are required to undertake an impairment test to ensure that assets are not overstated: impairment test does not apply to all assets.

Related Questions

Problem 1

You have determined that one asset and one CGU should be testedfor impairment at December 31, 20x2.

Details on these are as follows:

Asset Carrying value $2,800,000

Fair value 2,200,000

Costs to sell are expected to be equal to 7% of fair value

The assetâs useful life is 10 years and is expected to generatecash flows of $350,000 per year.

CGU

Carrying value

Land $ 800,000

Building 2,500,000

Equipment 1,300,000

Goodwill 950,000

Total $5,550,000

Fair values

Land (costs to sell = 8% of fair value) $1,200,000

Building (costs to sell = 10% of fair value) 2,700,000

Equipment (costs to sell = 25% of fair value) 800,000

The remaining useful life of the building and equipment is 16years. The cash flows generated by the CGU are expected to be$360,000 per year.

Required â

Calculate the impairment loss, if any, assuming that the entityis subject to:

a. IFRS. If there is an impairment loss for the CGU, allocatethe impairment loss to the CGUâs assets.

b. ASPE

A discount rate of 6% should be used.

Baker Inc. currently follows U.S. GAAP and is evaluating whetherto switch to IFRS. Bakerâs Controller is concerned that severalintangible assets on the companyâs books may be impaired.

The following information relates to a specific non-goodwillintangible asset with a finite life that the company is holding fordisposal in Year 1:

â¢

Carrying value: $4,350

â¢

Present value of future cash flows (fair value): $3,520

â¢

Sum of undiscounted expected future cash flows: $3,975

â¢

Estimated costs to sell: $345

Baker is also concerned about goodwill on its books, which it isevaluating at both a reporting unit level (GAAP) and acash-generating unit level (IFRS). The following informationrelates to goodwill in Year 1:

â¢	Reporting Unit level:
	-	Carrying value: $915,000
	-	Fair value: $820,000
	-	Fair value assigned to assets and liabilities: $760,000
	-	Goodwill: $75,000

â¢	Cash-generating Unit level:
	-	Carrying value: $350,000
	-	Fair value: $325,000
	-	Costs to sell: $55,000
	-	Present value of future cash flows (equal to fair value):$325,000 1.Calculate the impairment loss on the intangible asset underGAAP 2. If the fair value exceeds the carrying value in Year 2, willa reversal be allowed under GAAP? 3. If IFRS were used, calculate the impairment loss on theintangible asset 4. Calculate the impairment loss on goodwill under GAAP 5. Calculate the impairment loss on goodwill under IFRS

PUT THIS BELOW IN YOUR OWN WORDS NEED THIS ASAPTHANKS

1.Because Disney has developed its brand name itself instead ofpurchasing it from another company, no value is recognized in thefinancial statements. However, Disney does recognize the costs ofregistering and successfully defending its rights andtrademarks.

The Company is required to testgoodwill and other indefinite-lived intangible assets forimpairment on an annual basis and between annual tests if currentevents or circumstances require an interim impairment assessment.Goodwill is allocated to various reporting units, which aregenerally an operating segment or one reporting level below theoperating segment. The Company compares the fair value of eachreporting unit to its carrying amount to determine if there ispotential goodwill impairment. If the fair value of a reportingunit is less than its carrying value, an impairment loss isrecorded to the extent that the fair value of the goodwill withinthe reporting unit is less than the carrying value of its goodwill.Amortizable intangible assets are generally amortized on astraight-line basis over periods of up to 40 years.

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ACCT20002 Lecture Notes - Lecture 7: Market Capitalization, Impaired Asset, Book Value

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