FA2 – Seminar 04 Impairment of assets (inventories)

Application 1 – Disclosure in BS (financial statements)

Excel for NRV, Impairment, Trial Balance (TB), Balance Sheet (BS) and Income Statement (IS) available in excel here
(Moodle login required): https://econ.elearning.ubbcluj.ro/moodle/mod/resource/view.php?id=191978
Delman LLC had the following opening balances and transactions during the year:
Opening Balances (OB) Current Amounts (CA) Closing Balances (CB)
Account Name DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
Accounts payable --- 9.260
Accounts receivable 5.355 ---
Building 12.000 ---
Depr of building --- 2.400
Cash 10.000 ---
Commodities 4.000 ---
Input VAT 760 ---
Output VAT --- 855
Profit or loss ---
Shared capital --- 19.600
Sale revenues ---- ---

TOTAL 32.115 32.115

1. During the year depreciation was of 1.200 lei. A building with a cost of 3.000 and depreciation of 800 was scrapped
(removed from the books).
2. During the year purchases of commodities were of 9.500 lei + VAT 19%, paid 5.000 lei.
3. During the year the sales were of 20.000 lei + VAT 19%, of which 6.000 was cashed. Cost of sales 6355 lei
4. At the end-of-year (EOY), VAT is settled with the IRS.
5. At EOY an impairment test is made for the company inventories. Details in the table below.
6. at EOY expense and revenue accounts are balanced. Determine the CB for all accounts.

Description Inventory A Inventory B Inventory C

Cost 20 9 12
Sale price 30 12 12
Modification cost to enable sale - 2 8
Marketing costs 7 2 2
NRV
Units held 200 150 300

Impairment to be recorded:
Item Cost NRV min (cost, NRV) Units Total value
A 20
B 9
C 12
TOTAL
 General Journal
Accounts
Op Date Details Amount
Debit Credit
1 Year Scrap building
(Remove from books)

2.1 Year Purchase of commodities

2.2 Year Debt paid

3.1 Year Sale of commodities

3.2 Year Write-off sold commodities

3.3 Year Cash received from customers
4 Year VAT Settled

5 Year Impairment of inventories

6.1 EOY Close expense acc

6.2 EOY Close revenue accounts

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 General Ledger
D Acc payable C D Acc Receivable C D Shared capital C
9.215 OB OB 5.355 19.600 OB

D Building C D Building’s depr. C

OB 12.000 2.400 OB

D Input VAT C D VAT_______ C D Output VAT C

OB 760 900 OB

D Commodities C D Impairm of comm C D Cash C

OB 4.000 OB.
10.000

D Cost of sales C D Profit or loss C D Sale Incomes C

D Deprec. expenses C D Disposal Exp. C

D Impairm. expenses C

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Fill in the Balance Sheet and Income Statement.

Statement of financial position (vertical) Profit or Loss Account (vertical)

ASSETS Sales ______
Non-Current Assets
Cost of sales (_____)
Building (at cost) _______
Gross Profit (operational) ______
Less Depreciation (______)
Other expenses (Depreciation) (_____)
Current Assets
Inventories (commodities) _______ Other expenses (Impairm) (_____)
Trade accounts receivables _______ Other expenses (Disposal) (_____)
Cash and equivalents _______ Profit of the year (before tax) ______
TOTAL ASSETS _______
EQUITY
Shared capital _______
Profit or loss _______
LIABILITIES
Accounts payable _______
Other liabilities (VAT) _______
TOTAL EQUITY AND LIABILITY _______

Application 2 – Impairment of assets

Sigis PLC has on 01.12.N 1.000 kg materials in inventory, cost 20 lei/kg. At the end of the year the NRV of those materials is 18 lei/kg.
On 20.07.N+1 the company uses 400 kg materials. At the end of N+1, the realizable value is 21 lei/kg.

Solution:
Accounts
Op Date Details Amount
Debit Credit
1
Year N
D Materials C D Impairment of materials C
Si 1.000kg x 20

ASSETS SFP 31.12.N

Materials
(Cost______________ - Impairment______________)

Accounts
Op Date Details Amount
Debit Credit
2
3
4
Year N+1
D Materials C D Impairment of materials C
Si

ASSETS SFP
31.12.N+1
Materials
(Cost______________ - Impairment______________)
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