Case Study 1

Carrying Amount at the end of 2020

Beginning 2018 150
Depreciation for 2018 -10
Depreciation for 2019 -10
Depreciation for 2020 -10
Carrying Amount at the end of 2020 120

When should assets be impaired?

 When the projected future cash flows are lower than the book value or net carrying value,
it is deemed that assets have been impaired.
 The financial statements should show evidence of a lasting disability if it is deemed to be
permanent.

Impairment Loss
Value in use FV – costs to Higher to Carrying Impairment
sell both amount Loss
a b c d e=d-c
PPE 50 60 60 150 90
Quarry 15 20 20 40 20
Development

No Goodwill impairment is required as Luna’ Net assets Recoverable value is higher than
carrying value

.
 Turquoise CGU: CA of assets: 1,536,000 (1,260,000+276,000)
Recoverable Amount: 1,430,000
Impairment Loss: 106,000
GW suffers $46,000, remaining $60,000 distributed to remaining assets
CA Allocation CA After FVLCTS Allocation CA
Impairment Loss (Draft) Impairment Loss
(Draft)
GW 46,000 46,000 0 46,000 0

IT Network 284,000 284/1316 12,948 271,052 12,948 271,052

(60,000x284/1,316)
Land 450,000 450/1316 20,517 429,483 437,000 13,000 437,000
(60,000x450/1,316) (450,000-437,000)

Plant 393,000 393/1316 18,918 375,082 17,918 375,082

(1,310,000- (60,000x393/1,316)
917,000)

Patent 189,000 189/1316 8,617 180,383 8,617 180,383

(210,000- (60,000x393/1,316)
21,000)

Total $106,000 $98,483

Since, Land only suffered a maximum loss of 13,000, the excess of 20,517-13,000=7,517 will
be distributed to the remaining assets

CA Allocation CA After
Impairment Loss

IT Network $271,052 271,052/826,517 $2,465 $268,587

Plant 375,082 375,082/826,517 3,411 371,671

Patent 180,383 180,383/826,517 1,641 178,742

Total $826,517 $7,517

Dr Impairment Loss $106,000
Cr Goodwill 46,000
Cr IT Network 15,413 (12,948+2,645)
Cr Land 13,000
Cr Plant 21,329 (17,918+3,411)
Cr Patent 10,258 (8,617+1,614)
 Pink CGU: CA of Assets: $1,299,000 (1,110,000 + 189,000)
Recoverable Amount: 1,215,000
Impairment Loss: 84,000
GW incurs $32,000 with the remaining $52,000 distributed to the remaining assets (Patent not
included)

CA Allocation CA After FVLCTS Allocation CA

Impairment Loss (Draft) Impairment Loss
GW 32,000 32,000 0 32,000 0

IT Network 116,000 116/982 6,143 $109,587 6,143 $109,587

(52,000x116/982)
Land 290,000 290/982 20,517 274,644 15,356 274,644
(52,000x290/982)

Plant 576,000 576/982 18,918 545,499 540,000 30,501 545,499

(960,000- (52,000x576/982)
384,000)

Total $84,000 $84,000

The Plant’s FVLCTS Is lower than the recorded value after taking the loss, thus incurring the full
loss allotted to it.
Dr Impairment Loss $84,000
Cr Goodwill 32,000
Cr IT Network 6,143
Cr Land 15,356
Cr Plant 30,501