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