CF02: PROPERTY, PLANT & EQUIPMENT 9.

Checking appropriateness of line items & adequacy of

disclosure.
Sequence of Audit Procedures ❖ Verify if additions & retirements are properly reflected
in statement of CF under investing activities.
1. Obtaining PPE schedule & reconcile with ledger balance.
❖ Check footing in the schedule provided and reconcile the ~ ASSERTIONS ~
balances in general and subsidiary ledger or trial balance.  Existence or Occurrence [2,3,8] – To determine
❖ Beginning balances may be verified by reference to prior whether PPE include in the SFP physically exists.
year's audit working papers. Additions include only the capitalizable cost of assets
❖ Lapsing schedule is preferred but not commonly purchased, constructed, or leased & retirements are
provided. removed.
2. Vouching for additions and/or disposals, including retirements  Completeness [1,3,5,8] – To determine that PPE include
❖ Substantiate for additions during the period, check for all capitalizable costs & capitalizable are not expensed.
the mode of acquisition and the corresponding initial cost  Rights & Obligations [2,4] – To determine that the
assigned if it conforms with capitalization and valuation company has legal title or equivalent ownership rights to
as discussed in PAS 16 and related standards. PPE included in the SFP & the related lease obligation
❖ Verify additions through purchase from the minutes of of capitalized leased assets & decommissioning costs, if
the meeting to check if purchase is properly authorized. any, are recognized.
❖ Relate the loan related to borrowing cost if it satisfies  Accuracy, Valuation, & Allocation [1,2,5,6,7,8] – To
rule for capitalization as per PAS 23. determine that PPE is stated at cost & allowance for
❖ Analyze minutes of the meeting for approval of depreciation or depletion are computed on the basis of
disposals/retirements of certain PPE. acceptable & consistent methods.
❖ Check if additions/retirements/disposals are properly  Classification, Presentation, & Disclosure [4,5,9] – To
reflected in statement of cash flow under investing determine that PPE are properly described & classified
activity. in the SFP & related disclosures are adequate.
❖ Check for material cash receipts and disposals in CRJ
and CDJ which might establish addition/disposal/ Illustrative #1
retirements of PPE.
3. Physical Inspection ABC corporation had the ff items recorded in its PPE account as of
❖ Inspection of a PPE item and tracing it to PPE ledger December 31, 2011:
establishes evidence of completeness. Items DEBITED to the account:
❖ Selection of PPE from ledger and inspecting it 1. Cash paid to purchase a land 18. Ventilation & lighting
establishes evidence of existence. with a dilapidated bldg. at the system & elevator (3/4 are
❖ Physical inspection also allows the auditor to check the beginning of the yr – 660,000 installed during constructions)
working condition of PPE which will help in establishing [L] – 250,000 [B & B.I]
the appropriateness of depreciation method used, useful 2. Mortgage assumed on the 19. Fixed overhead charged to
land purchased – 240,000 [L] the bldg. – 300,000 [B]
life and impairment computed.
3. commission paid to real 20. Cost of temporary quarters
4. Examine evidence of legal ownership and restrictions of PPE estate agent – 150,000 [L] for new constructions –
❖ Check if ownership is under the name of the entity. 4. Cost of option to buy the 150,000 [B]
❖ Documents presented by entity can also establish land – 10,000 [L] 21. Insurance on bldg. during
ownership to properties in possession of another entity, 5. Attorney’s fee in connection construction – 90,000 [B]
i.e, in the case of items under lease agreements. with land acquisition (for 22. Profit on construction, as
❖ For recurring engagement, roll-forward the balance from establishing clean title, title difference between the
prior working paper as proof of ownership. insurance & search) – 75,000 appraised value of the asset
❖ Check for existing covenants and contracts in case a [L] after construction & actual
property is used as collateral for loan contracts entered 6. Cost of razing the old cost incurred – 360,000 [X]
by entity and countercheck it under cash receipts journal structure – 120,000 [B] 23. Payments made to
for inflow of cash from financing activity. 7. Grading, leveling & construction workers injured
5. Analyze lease and recalculate repair and maintenance expense landscaping costs (permanent during the construction not
improvements) – 50,000 [L] covered by insurance – 90,000
accounts.
9. Interest on loan for [OE]
❖ Analyze the lease contract to properly identify what type construction of a new bldg. 24. Payments to tenants of the
of lease is involved. (Based on average costs old bldg. to vacate premises –
❖ Examine repairs and maintenance and check if these incurred) – 81,000 [B] 90,000 [B]
really do not qualify for capitalization. 10. Bldg. construction labor 25. Modification of bldg.
6. Test provisions for depreciation and depletion. costs – 800,000 [B] ordered by bldg. inspectors –
❖ For first-time audit engagement, examine depreciation 11. Bldg. construction mats – 225,000 [OE]
and/or depletion policies and check if the depreciation 672,000 [B] 26. Property taxes on land
and/or depletion expense recognized properly 12. Cost of temporary fencing covering 2008-2011 – 240,000
correspond with the policies established. around the property during the [08-10 = L] [11 = OE]
❖ Recompute provision for depreciation and depletion and construction – 28,000 [B] 27. Interest that would have
compare it with the amounts recognized in previous 13. Cost of permanent fencing been earned had the money
– 86,000 [L.I] used during the period of
years. 14. Architect’s fees & construction been invested in
7. Evaluate impairments of property, plant, and equipment. superintendent fees, incl 30,000 money market – 150,000 [X]
❖ Assess reasonableness of management's estimates of the safety inspection fee – 312,000 [B]
28. Invoice cost of machinery
value of property, plant and equipment. 15. Cost of paving driveway & acquired, terms, 10/10, n/30 –
❖ Check if the policy of the company in recognizing parking lot – 70,000 [L.I] 430,000 [M&E]
impairment conforms with the Standards (PAS 38). 16. Excavation exp, incl 29. Safety rail & platform
8. Analytical procedure for PPE. 90,000 cost of excavation surrounding machine & water
❖ Ratio and Trend analysis to identify fluctuations as equipment – 135,000 [B] device to keep machine cool –
17. Immovable shelves, 50,000 [M&E]
compared to previous years specially in depreciation,
cabinets & partitions –
depletion and repairs and maintenance. 180,000 [B]

5 | P a g e | AUD 4 – PROPERTY, PLANT, & EQUIPMENT

 30. Estimated saving if 32. Fees to foreign technicians 9/hr * 8hrs/day * 24d/mos * 2mos = 3,456
manufacturing similar during installation & test run Dep exp 3,456
machinery – 85,000 [X] of machines – 20,000 [M&E] Accum dep 3,456
31. Freight, unloading & 33. Royalty payment on [trade-in value + cash paid + testing & assembly – rebate]
delivery charges & in-transit machines purchased (based on Equipment 201 147,456 [35+105+15-7.544]
insurance & machine units produced & sold) – Advances to suppliers 7,544 [rebate; pd dr cash if cash nakuha]
refurbishment cost – 25,000 75,000 [OE] Accum dep 38,016 [(9*8*24*20)+3,456)
[M&E]
Initial op loss 9,000
Items CREDITED:
Loss in trade-in 37,576 [balancing figure]
34. Salvage proceeds from demolished bldg. – 15,000 [B]
Equipment-old 110,592
35. Proceeds from sales of excavation equipment – 30,000 [B]
Cash 129,000 [cash paid + testing &
36. Proceeds from sale of produce of machinery test runs – 3,500
assembly + initial op loss]
[Rev]
Dep from E201 for 2022 (Mar-Dec)
In addition, you discovered that compensation for the worker’s injury
12*8*24*10 = 23,040
was necessary because it was not covered by the insurance policy
Dep from E201 for 2023 (Jan-Dec)
purchased by the company. Accident insurance that would have
12*8*24*12 = 27,648
covered the same would have cost 20,000. The modification ordered
by the bldg. inspectors resulted from poor planning by the company.
April 1, 2022
ABC company acquired a land 101 and a building 301 by paying a
a. Land – 1,390
total of 3,100,000 The building will be used by ABC as its head
b. Bldg. – 3,100.5
office. Other costs incurred include:
c. Land Improvements – 156
Draining and fand Billing cost-60,000
d. Machinery & equipment – 679.5
Escrow fees on properties acquired-50,000
e. Outright exp – 450
Broker's fee on properties acquired-30,000
f. Bldg. improvements – 62.5
Cost of option of the acquired properties-30,000
Renovation of budding-100,768
Illustrative #2
Transfer of title-12,000
Capital expenditure to make the building more energy efficient-
200,000
ABC Company has presented to you its PPE items & related ABC determined that the fair values of building and land are P
transactions in the yrs 22-23: 1,716,000 and P 3,484,000, respectively.
UL / Resid Common cost: Purchase price + cost of option + escrow + broker
PPE Dep
Cost A/D* Capa ual
Item Method
city value
3.1M + 30K + 50K + 30K = 3,210
Land 2M - N/A N/A N/A Allocated cost: 3,210
Machine 700k 240,048 Output Varies Varies FV Bldg. 1,716 1,059.3
** method FV Land 3,484 2,150.7
Eqpmt 294.912 79,336 Working 12,28 0 5,200
hrs 8 hrs
method Land 2,222,700 (alloc CC + draining & filling + title transfer)
Bldg. 2.4M 569,4 Double 20yrs 25% Bldg. 301 1,360,068 (alloc CC + renovation + capex)
declining TC Cash 3,582,768
Furnitu 360k 165,3 SYD 3yrs 13% Dep rate: 1/20yrs * 200% = 10%
re TC
B301 Dep, Y1 (04/01/22-04/01/23): 1,360,068*10% = 136,006.8
Vehicle 1,991,040 599,386 SLM 8yrs 15%
TC B301 Dep, Y2 (04/01/23-04/01/24): 1,360,068*90%*10% =
*Accumulated Depreciation as of December 31, 2021 122,406.12
**Consists of two machines, the first costing 400,000 (used for 29 Dep from bldg. 301 for 2022 (Apr-Dec Y1): 136,006.8*9/12 =
months), has a residual value of P11,200, and can produce 7,200 102,005.1
units, and the second costing 300,000, has a residual value of P 9,120, Dep from bldg. 301 for 2023 (Jan-Mar Y1, Apr-Dec Y2):
and can produce 2,880 units (136,006.8*3/12) + (122,406.12*9/12) = 125,806.29
For simplicity, assume that the company has a 24 working days per
month and each working day has 8 operating hours. Each output June 1,2022
takes 80 minutes of using the machine to produce. ABC exchanged its land (from 2021) with a carrying amount of P
400,000 to furniture 401 set and P30,000 cash of another entity. At
January 1, 2022 this date, the land is fairly valued at P421,000. ABC incurred P10,000
ABC Company acquired a set of vehicle 601 with a fair value of P to expand the capacity of the furniture Assembly cost amounting to
4,993,920 by issuing 100,000 P45 par ordinary shares. These shares P 8,800 was also incurred.
are quoted at P 52.70 per share. Furniture 401 469,800 [FV land + cash paid + expansion + assembly]
Vehicle 601 4,993.92 Land 400,000
OS 4,500 Cash 48,000 [cash paid + expansion + assembly]
SP 493.92 Gain 21,000 [balancing]
Annual dep: (4,993.92*85%)/8 = 530,604 F401 dep, Y1 (06/01/22-06/01/23): (469.8*87%)*3/6 = 204.363
F401 dep, Y2 (06/01/23-06/01/24): (469.8*87%)*2/6 = 136.242
February 28, 2022 Dep from F401 for 2022 (June-Dec Y1): 204.363*7/12 = 119.21175
ABC Company traded in its used equipment (P 110,592 cost acquired Dep from F401 for 2023 9Jan-May Y1, June-Dec Y2):
on April 30, 2020) for a new model of equipment 201. Upon (204.363*5/12) + (136.242*7/12) = 164,625.75
inspection, trade-in value of the used PPE is P 35,000 and this
requires ABC to pay an additional P 105,000 cash, ABC also incurred July 31, 2022
testing and assembly cost worth P 15,000 and initial operating loss ABC purchased on account a machine 501, with a list price of P
of 9,000. The dealer granted ABC company P 7,544 rebates in 700,000. The seller allowed a trade discount of P 50,000 and discount
connection to the trade transaction. terms of 6/20, n/45. Initial delivery cost amounted to P 22,000.
Dep for old equipment trade-in: 110,592/12,288hrs = 9/hr Rebates availed amounted to P 20,000 it can produce 8.208 units and
has a residual value of P 5,508. Output method is used in machine.

6 | P a g e | AUD 4 – PROPERTY, PLANT, & EQUIPMENT

[(list price – trade disc)*94 + deliver – rebates) Furniture 402 233,280 [FV + Professional fees]
Machine 501 613,000 Marketing exp 15,000
Adv to suppliers 20 [rebate; same sa una] Donated cap 210,000 [FV]
AP 611,000 [(LP – TD)*94%] Cash 38,280 [PF + Marketing]
Cash 22 [Delivery cost]
Machine dep/output: (613-5.608)/8.208u = 74/output July 31, 2023
Output/day: (8*60)/80 = 6 outputs The second machine acquired before 2022 was sold for scrap
Dep/month: 74*6*24d per mos = 10,656/mos resulting to a gain of P 14,000. This was already fully depreciated at
Dep from M501 for 2022 (Aug-Dec): 10,656*5 = 53,280 this point.
Dep from M501 for 2023 (Jan-Dec): 10,656*12 = 127,872 6 output/day*24d*7mos (Jan-Jul) = 1,008 [incl in 2023 dep]
2nd machine acquired before 2022 dep: 101/output * 1,008 = 101,808
August 1, 2022 Dep exp 101,808
ABC sold its furniture acquired before 2022 resulting to a loss of P Accum dep 101,808
3,000. Cash 23,120 [Bal fig]
Y1 dep = (360*87%)*3/6 = 156.6 Accum dep 290,880 [cost – residual value; fully dep]
Lower sha sa existing accum dep; meaning yung existing furniture is Machine-old 300,000
used more than 12mos. Gain 14,000
Y2 Dep = (360*87%)*2/6 = 104.4; 104.4/12 = 8.7k/mos
Adding the 2 dep will be more than accum dep bal; meaning the November 1, 2023
existing furniture is used more than 12mos but not less than 24mos. ABC company purchased equipment 202 and machine 502 for a total
165.3 – 156.6 = 8.7; ginamit yung furniture for 13mos price of P: 600,000. Individual prices of the machine and the
From Jan 2022-Aug 2022, 7mos, Y2 yung gagamiting dep equipment are P480,000 and P 120,000, respectively. Administrative
104.4*7/12 = 60.9 (incl in 2022 dep exp) costs amounted to 18,000. Cost of testing the equipment amounted
Dep exp 60,900 P2,880. The machine with a residual value of 31,800 can produce a
Accum dep 60,900 maximum of 9,960 units. Output method is used to depreciate the
Cash 130,000 (bal fig) machine.
Loss 3,000 E202 dep/hr: 122,880/12,880 = 10/hr
Accum dep 226,200 Dep for 2023 from E202 (Nov-Dec): 10*8*24*2 = 3,840
Furniture-old 360,000 (cost) M502 dep/output: (480-31.8)/9.96 = 45/output
Dep 2023 from M502 (Nov-Dec): 45*6*24*2 = 12,960
September 1, 2022 Equipment 202 122,880 [Indiv price + testing]
ABC incurred P 765,000 of direct materials and direct labor in Machine 502 480,000
constructing its new building 302. It is estimated that factory Admin exp 18,000
overhead consists 15% of the total manufacturing cost. Upon Cash 620,880 [TP + test + admin]
comparing the total cost of construction incurred to the cost if such
asset is purchased from others, total cost of construction incurred is November 30, 2023
15% greater than the assumed purchase price. Of the excess cost, it ABC Company acquired a vehicle 602 with FV of 3,200,000 by
is identified that 40% is considered not materially excessive. issuing 3,000 P1,000 BP. The BP is quoted at 1.04992.
Bldg. 302 819,000 [(765/85%) = 900 – 81] Annual dep for V602: (3,149.76*85%)/8 = 334,662
Loss 81,000 [900*15% = 135*60%] Dep 2023 from V602 (Dec): 334,662*1/12 = 27,888.5
Cash 900,000 Vehicle 602 3,149,760 [3M*1.04992]
B302 dep Y1 (09/01/22-09/01/23) = 819*10% = 81.9 BP 3,000,000
B302 dep Y2 (09/01/23-09/01/24) = (819*90%)*10% = 73.71 Premium on bonds 149,760
Dep from B302 for 2022: 81.9*4/12 = 27.3
Dep from B302 for 2023: (81.9*8/12) + (73.71*4/12) = 79.17 December 31, 2023
ABC company acquired a bldg. 503. Terms of payment incl a
2022 Dep for existing PPE before 2022 1,000,000 down payment & the balance of 4,000,000 to be paid
6 outputs/day*24d/mos*12mos/yr = 1,728 1,000,000 annually starting Dec 31,2024. PV of OA of 1 @ 10% ia
First machine: (400-11.2)/7.2 = 54/output * 1,728 = 93,312 3.17. Cash price of bldg. on Dec 31, 2023 is 4,100,000. Also, cost
Second machine: (300-9.12)/2.88 = 101/output * 1,728 = 174,528 incurred in opening a new facility to the bldg. amounted to 30,000.
Remaining eqpmt [02/28/22]: (294,912 – 110,592)/12,288 = 15/hr Upon purchase, ABC also became currently liable for future
15*8hrs/day*24d*12 = 34,560 retirement costs amounting to 40,000 (retirement cost is at PV
already).
Bldg.: Y3 dep (194.4*5/12) + Y4 dep (174.96*7/12) = 183.06 Wala dep kase last day na uwu.
Dep AD CA Bldg. 503 4,140,000 [Cash price equivalent + future retirement cost]
Y0 2,400 Admin exp 30,000 [cost of opening facility]
Y1 240 240 2,160 Disc on notes 1,000,000 [bal fig]
Y2 216 456 1,944 Cash 1,030,000 [DP + AE]
Y3 194.4 650.4 1,749.6 NP 4,000,000
Y4 174.96 825.36 1,574.64 Liab for retirement 40,000
Y5 157.464 982.824 1,417.176 2023 Dep for existing PPE before 2023
6 outputs/day*24d/mos*12mos/yr = 1,728
Vehicle: (1,991,040*85%)/8 = 211,548 First machine: (400-11.2)/7.2 = 54/output * 1,728 = 93,312
Remaining eqpmt [02/28/22]: (294,912 – 110,592)/12,288 = 15/hr
April 30, 2023 15*8hrs/day*24d*12 = 34,560
A donation of furniture 402 from a non-shareholder was received it
was determined that the quoted price of the donated PPE amounted Bldg.: Y4 dep (174.96*7/12) = 164,754
to P 210,000 Professional fees incurred was P 23,280 while Dep AD CA
marketing cost is P 15,000. Y0 2,400
F402 dep, Y1: (233.28*87%)*3/6 = 101,476.8 Y1 240 240 2,160
Dep 2023 from F402 (May-Dec): 101,476.8*8/12 = 67,651.2 Y2 216 456 1,944

7 | P a g e | AUD 4 – PROPERTY, PLANT, & EQUIPMENT

 Y3 194.4 650.4 1,749.6 (b) treat the grant as deferred income
Y4 174.96 825.36 1,574.64 01/01/15
Y5 157.464 982.824 1,417.176 Same sa una
Cash 550
Vehicle: (1,991,040*85%)/8 = 211,548 Deferred grant inc 550
12/31/15
Illustrative #3 [6,000/5] = 1,200
Dep exp 1,200
On March 1, 2022, An entity purchased a machinery worth 9 Acc dep 1,200
233,750. It has a salvage of P 33,750 and has an estimated useful life [550/5] = 110
of 3.5 years. Required: Compute for 2022 and 2023 depreciation Deferred grant inc 110
using SYD method. Grant inc 110
Date Ratio Depreciable cost Periodic 12/31/16
Dep Dep exp 1,200
03/01/22- 7/28 200 50 Acc dep 1,200
09/01/22 01/01/17
09/01/22- 6/28 200 42.857 Deferred grant inc 330
03/01/23 Loss on grant repay 220
03/01/23- 5/28 200 35.714 Cash 550
09/01/23 12/31/17
09/01/23- 4/28 200 28.571 Dep exp 1,200
03/01/24 Acc dep 1,200
03/01/24- 3/28 200 21.429
12/31/18
09/01/24
Dep exp 1,200
09/01/24- 2/28 200 14.286
Acc dep 1,200
03/01/25
03/01/25- 1/28 200 7.143
09/01/25 Illustrative #5
If may decimal, dat gawing whole number sha. 0.50yr treated sha as
1 period. Divide yung yung entire useful life sa excess or decimal. In ABC Company had the following outstanding loans during 2015 and
this case, 3.5/.5 = 7 periods. Tas for each ratio [(7+1)/2 * 7 = 28] 2016:

Illustrative #4 11% Specific construction loan-3,500,000

10% General Loan- 26,000.000
ABC Company purchased a machine for P6,000,000 on January 1, The entity began the self-construction of a new building on January
2015. The entity received a government grant of P550,000 in respect 1, 2015 and the building was completed on
of this asset. The policy is to depreciate the asset over 5 years on a June 30, 2016. The following expenditures were made:
straight-line basis. 1/1/15 4,600,000
On January 1, 2017, the grant became fully repayable because of 4/1/15 5,000,000
noncompliance with conditions. 12/1/15 3,000,000
Assume: 3/1/16 6,000,000
(a) treat the grant as reduction of asset Compute for borrowing cost in 2015 and 2016.
01/01/15
Machine 6,000 Illustrative #6
Cash 6,000
Cash 550 ABC Company acquired a building on January 1, 2012 at a cost of P
Machine 550 40,000,000. The building has an estimated useful life of 6 years and
12/31/15 residual value of P4,000,000.
[(6,000-550)/5] = 1,090 The building was revalued on January 1, 2015 and the revaluation
Dep exp 1,090 revealed replacement cost of P60,000,000, residual value of
Acc dep 1,090 P8,000,000 and revised useful of 8 years.
12/31/16 Two years after revaluation, fair value of the equipment is
Dep exp 1,090 determined to be P 14,600,000.
Acc dep 1,090 Account for the impact of revaluation to the PPE.
01/01/17
Machine 550 Illustrative #7
Cash 550
12/31/17 ABC Exploration Company purchased in 2011 a property that
Dep based on OG cost: 6,000/5 = 1,200 contained certain mineral deposits for P45,000,000.00. Estimated
Unrecognized dep on yrs with grant: (550/5)*2yrs = 220 recovery was 10,000,000 metric tons of deposits.
Dep exp 1,420 Development casts of P 1,500,000.00 were also incurred in the same
Acc dep 1,420 year, and property was expected be worth P6,000,000.00 after the
12/31/18 mineral deposits had all been removed, but the same will require
Dep exp 1,200 restoration costs of P2,500,000,00. Based on the assessment at the
Acc dep 1,200 end of 2011, the extraction of resources from the site will last up to
December 31, 2020.
The company establishes a provision for such restoration,
discounting the amount at the prevailing interest rate of 8%. During
2011, the company extracted & sold 1,000,000 metric tons of
mineral.
Further development costs of 750,000 were incurred & capitalized in
2012, and the estimate total recoverable deposits (incl the amount

8 | P a g e | AUD 4 – PROPERTY, PLANT, & EQUIPMENT

extracted in 2011) was revised to 9,250,000 metric tons. During
2012, the company recovered 1,500,000 metric tons.
Prepare for appropriate entries & compute for yearly depletion.

Illustrative #8

On July 1, 2012, ABC Mining Company paid P 3,600,000 for mining

property with a supply of natural resources estimated at 800,000 tons.
The mining firm expects to extract and sell 10,000 tons of the
resources a month.
Operations started immediately. The selling price is P 20/ton. ABC
uses percentage (15%) depletion for tax purposes and uses calendar
accounting period.
For use in production, the company also bought some new equipment
on July 1, 2012. The equipment costs P96,000.00 and had an
estimated life of 12 years.
However, after all the natural resources is extracted from the mine,
the equipment will be of no use and will be sold for an amount of P
6,000.00.
Compute for 2012 depletion expense and depreciation expense

Illustrative #9

ABC Company has one division that performs machinery operations

on parts that are sold to contractors.
A group of machines had an aggregate cost and accumulated
depreciation on January 1, 2015 as follows:
Machinery P90,000,000
Accumulated depreciation P25,000,000
The machines have an average remaining useful life of 4 years and it
has been determined that this group of machines constitutes a cash
generating unit.
The fair value less cost of disposal of this group of machines in an
active market is determined to be P 44,000,000. 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:
Inflows Outflows
2015 30,000 12,000
2016 32,500 17,500
2017 27,500 12,500
2018 16,000 4,000

It is believed that a discount rate of 7% is reflective of time value of

money.
Compute for impairment loss.

Illustrative #10

One of the cash generating units of ABC Company is the production

of liquor. At year-end, the entity 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 at year-end are:

Cash 4,000
Accounts Receivable 6,000
Allowance for Doubtful Accounts 1,000
Inventory 7,000
PPE 22,000
Accumulated Depreciation 4,000
Goodwill 3,000
Accounts Payable 2,000
Loans Payable 1,000
The entity determined that the value in use of the cash generating unit
is 30,000,000. The accounts receivable is considered collectible,
except those considered doubtful.
Compute for impairment loss

9 | P a g e | AUD 4 – PROPERTY, PLANT, & EQUIPMENT