[vroom_2011]

Asia Ltd has 3 divisions, A, B, and C, which operate independently of each other to produce electronic products. Each is considered a cash generating unit (CGU)*

The company has a head office and a research centre located in Sydney, with the divisions located throughout Australia. The research centre assists all divisions to improve the manufacturing process and the quality of products made.

At present there is no basis on which to determine how the research centre’s assets below should be nominally allocated to each division for product costings or for any adjustments for changes in asset values. The company head office provides equal services to all divisions meaning an allocation of 1/3 to each is fair. Head office provides an immaterial amount of services to the research centre. Neither the research centre or headquarters generate cash flows. On 30 June 2010 the net assets ofAsiaLtd were as follows:
Division A Division B Division C HO RC
Real estate 440 000 280 000 160 000 110 000 67 000
Plant & equip. 840 000 620 000 540 000 80 000 45 000
AccuM dep (240 000) (200 000) (160 000) (10 000) (12000)
Inventories 240 000 180 000 140 000 0 0
Accounts rec 120 000 100 000 60 000 0 0
1 400 000 980 000 740 000 180 000 100000
Liabilities 120 000 100 000 100 000 0 0
Net assets 1 280 000 880 000 640 000 180 000 100 000
Big’s management believes that the company’s assets have been impaired. The value in use of assets has been assessed for each division below:
Division A $1 550 000
Division B $1 000 000
Division C $ 750 000
The real estate held by division A was measured at fair value using the revaluation model because of the specialised nature of the real estate and at 30 June 2010, the fair value was $440 000. The real estate held by division B was measured at cost, and had fair value less costs to sell of $277 264 at 30 June 2010.

Required:
Your task is to determine how ASIA Ltd should account for any impairment. You need to justify your decisions and provide any required journal entries. Use the list below to guide you.
(a) Construct 1 table showing the calculations revealing whether each division has had an impairment loss or not.
(b) Construct 1 table for each division that has an impairment loss. The table must show the allocations of the impairment loss to the allowable assets of the division and the adjusted carrying amount of each asset that has been written down. It must also show the allocation of the impairment loss to its share of head office assets.
(c) Write the necessary impairment loss general journal entry for each division in (b) above for the division’s assets.
(d) Construct 1 table for head office that shows the calculations of the impairment losses for each head office individual asset that has been written down and its adjusted carrying amount.
(e) Write the necessary impairment loss general journal entry for head office in (d) above.
For this assignment there is no need to adjust the asset values of the Research centre.
* CGU: the smallest identifiable group of assets generating cash inflows and outflows that can be measured. Each division is a CGU.

[smoothy]

Read this first: Expectations for the Homework Help board

--------------------------------------------------------------------------------

Do not simply retype or paste a question from your book or study material

We won't do your homework questions for you.
You were given the assignment for you to learn.

If you come up with your own answer and post it for us to critique that is within reason.

If you have some SPECIFIC questions that you couldn't find or didn't understand, we may help with that.
But this is your assignment, so show us you have at least attempted to complete it on your own.

Thank you.

[chrisjay0708]

I tried doing this question, the way I calculated it is say for Division A
Real Estate + Plant & equip less accum. Depn. = carrying amount which gives you $1040000
Recoverable amount = $ 1550000 (which is the value in use)

therefore, the asset would not be impaired because the carrying amount is lower than the recoverable amount.

I'm not sure if this is right because when I do it to all the divisions, the recoverable amount is all higher than its carrying amount.

Can you please help me if I done it right?
Thanks

[tytyy]

I tried to do this question.
Division A: Real Estate + Plant & Equip + more allocation of head office= 440,000+840,000+60,000=1340000 carrying amount
Therefore, the asset would not be impaired for division A because the carrying amount is lower than the recoverable amount.
For division B& C I used the same method, as a result I found division B no impairment loss but division C only has impairment loss for 10,000. My question do I am right? Please help me with this. Thank. Am I right that not include Accumulated depreciation before revaluation. Thanks in advance. Please give me some feedback.

[Just Looking]

The comparison is based on carrying costs, which is book value (original cost less accumulated depreciation).

[paa_kwesi]

The aim of IAS 36, Impairment of Assets, is to ensure that assets are carried at no more than their recoverable amount. If an asset's carrying value exceeds the amount that could be received through use or selling the asset, then the asset is impaired and the standard requires a company to make provision for the impairment loss.

[Shavneet]

How do you account for the depreciation of the research centre.

[Shavneet]

How do you account for the depreciation of the research centre.

I meant how to calculate the impairment for the research centre?