Cash-generating units sample problems

1. Syria Company has one division that performs machinery operations on parts that are sold to
contractors. A group of machines have an aggregate cost of P90,000,000 and accumulated
depreciation of P25,000,000 on January 1, 2016.
The machines have an average remaining life of 4 years and it has been determined that this group of
machines constitutes a cash-generating unit. The fair value less cost to sell of this group of machines in
an active market is determined to be P48,000,000. Based on supportable and reasonable assumptions,
the financial forecast for this group of machines reveals the following cash inflows and cash outflows for
the next four years:
Cash inflows Cash outflows
2016 30,000,000 12,000,000
2017 32,500,000 17,500,000
2018 27,500,000 12,500,000
2019 16,000,000 4,000,000
It is believed that a discount rate of 8% is reflective of time value of money and the risks specific to the
group of machines. The table of present value shows that the present value of 1 at 8% is 0.930 for one
period; 0.857 for two periods; 0.794 for three periods; and 0.735 for four periods.
Required:
1. Determine the value in use.
2. Determine the recoverable amount.
3. Record the impairment loss, if any.
4. Record the depreciation for 2016.

2. One of the cash-generating units of Color Company is the production of purple crayon. On
December 31, 2016, Color Company believed that the assets of the cash-generating unit are
impaired based on an analysis of economic indicators. The assets and liabilities of the cash
generating unit at carrying amount on December 31, 2016 are:
Cash 4,000,000
Accounts receivable 6,000,000
Allowance for doubtful accounts 1,000,000
Inventory 7,000,000
Property, plant, and equipment 22,000,000
Accumulated depreciation 4,000,000
Goodwill 3,000,000
Accounts payable 2,000,000
Loans payable 1,000,000
The entity determined that the value in use of the cash-generating unit is P30,000,000. The
accounts receivable are considered collectible, except those considered doubtful.
Required:
a. Determine the impairment loss, if any, of the cash-generating unit.
b. Prepare the entry to record the impairment loss.
3. Burglar Company has two cash-generating units. On December 31, 2016, the assets of one cash
generating unit at carrying amount are:
Inventory 200,000
Accounts receivable 300,000
Plant and equipment, net 3,400,000
Patent 850,000
Goodwill 100,000
The accounts receivable are regarded as collectible and the inventory’s fair value less cost to sell
is equal to the carrying amount. The patent has a fair value less cost of disposal of P750,000. On
December 31, 2016, the entity determined the value in use of the unit at P4,050,000.
a. Determine the impairment loss.
b. Prepare the entry to record the impairment.

4. At reporting date, the carrying amount of a cash-generating unit was considered to be impaired
by P1,000,000. The unit included the following assets: Land, P3,000,000; Building, P2,000,000;
Goodwill, P500,000. The fair value of land is reliably determined to be P2,800,000. The carrying
amount of building after impairment loss is?