Question:

Vision Ltd acquired all the assets and liabilities of Hazel Ltd on 1 January 2018. Vision Ltd’s
activities were run through three separate businesses, namely Sandstone Unit, the Sapphire Unit
and the Silverton Unit. These units are separate cash-generating units.
Sandstone $ Sapphire $ Silverton $
Factory 820 750 460
Accumulated depreciation (420) (380) (340)
Land 200* 300** 150*
Equipment 300 410 560
Accumulated depreciation (60) (320) (310)
Inventory 120* 80* 100*
Goodwill 40 50 30
Corporate property 200 150 120

*these assets have carrying amount less than fair valve less costs to sell.
**this asset has a fair valve less costs to sell of $290.

Vision Ltd determined the valve in use of each of the business units at 31 December 2018.
Sandstone $ 1100
Sapphire 900
Silverton 800

Required:
Using IAS 36 to answer the following questions
i) Calculate the amount of the impairment loss, if any, for all divisions. [6Marks]

ii) Show the allocation of any impairment loss to all impaired divisions. [8 Marks]

iii) Prepare the journal entries required at 31st December 2018 to account for any impairment
losses. [6 Marks]

Solution
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 i) Vision Ltd

  Sandstone ($) Sapphire ($) Silverton ($)

Carrying amount of assets 1,200 1,040 770
Value in Use 1,100 900 800
 Impairment loss (100) (140) 0
 
Total carrying amount after adjusting for 1,100 900 770
impairment loss

The carrying amount of all the units add to $2,770. This is less than the total value in use of
$2,800. Hence, there is no need to write down the assets of the business. However, the assets of
Sandstone and Sapphire units must be written down.

Allocate impairment loss to:

Sandstone ($) Sapphire ($)

Impairment loss 100 140
Allocation to goodwill (40) (50)
Land 0 (10)
Unallocated impairment loss $60.00 $80.00

ii) Remainder of impairment loss to be allocated to Sandstone unit is $60. Allocated to all
other assets except Land and Inventory

Carrying Amount Proportion Allocation of Net Carrying

($) Excess ($) Amount ($)
Factory 400.00 40/84 28.57 371.43

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 Equipment 240.00 24/84 17.14 222.86
Corporate Property 200.00 20/84 14.29 185.71
840.00 60.00

Remainder of impairment loss to be allocated to Sapphire unit is $80. Allocated to all other
assets except Land and Inventory

Carrying Amount Proportion Allocation of Net Carrying

($) Excess ($) Amount ($)
Factory 370.00 37/61 48.53 321.47
Equipment 90.00 9/61 11.80 78.20
Corporate Property 150.00 15/61 19.67 130.33
610.00 80.00

Summary of allocation of impairment loss to various CGUs:

Sandstone ($) Sapphire ($)

Factory 28.57 48.53
Equipment 17.41 11.80
Corporate property 14.29 19.67
Goodwill 40.00 50.00
Land 0.00 10.00
Total $100.00 $140.00
iii) Journal entry for Sandstone unit:

Impairment loss expense Dr $100.0

0
Acc. Depreciation & impairment losses- factory Cr 28.57
Acc. Depreciation & impairment losses- equipment Cr 17.14
Acc. Depreciation & impairment losses- corporate Cr 14.29
property
Goodwill Cr 40.00
(Allocation of impairment loss)

i) Journal entry for Sapphire unit:

Impairment loss Dr $140.0

0
Acc. Depreciation & impairment losses- factory Cr 48.53
Acc. Depreciation & impairment losses- equipment Cr 11.80

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Acc. Depreciation & impairment losses- corporate Cr 19.67
property
Acc. Depreciation & impairment losses- land Cr 10.00
Goodwill Cr 50.00
(Allocation of impairment loss)

Note:
 Assets related to Silverton unit will not be impaired as it’s recoverable amount is
greater than its carrying amount.
 Impairment loss will be first allocated to Goodwill
 Land for Sapphire will be impaired to the extent of its fair value less cost to sell,
i.e. ($300 – 200) = $10 only
 Land for Sandstone will not be impaired as its fair value less cost to sell is greater
than the carrying amount
 Inventory for Sandstone & Sapphire will not be impaired as its fair value less cost
to sell is greater than the carrying amount.

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