Question 5 (updated 3/6/2020).

An extract of a company’s draft statement of financial position at 30 June 2019 discloses the following:

Plant (at cost)         $500000

Less accumulated depreciation   300000 $200000

On 30 June 2019 the company assessed the fair value of the plant to be $350 000. 

The tax rate is 30%. 

Required

Raise the journal entries to record the revaluation on 30 June 2019.

Workshop 05 Impairment of Non-current Assets and Intangibles

Question 6

On 1st October 2015, Tebble Ltd acquired all the assets and liabilities of Sensible Ltd. Sensible Ltd has a number of operating divisions, including one whose major industry is the manufacture of canned fruit. The canned fruit division is regarded as a cash generating unit. In paying $2 million for the net assets of Sensible Ltd, Tebble Ltd calculated that it had acquired goodwill of $50,000. The goodwill was allocated to each of the divisions, and the assets and liabilities acquired measured at fair value at acquisition date.

At 30th June 2018, the carrying amount of the assets and liabilities of the canned fruit division were factory $200,000; land $150,000; inventory $50,000; equipment $50,000; and goodwill $10,000.

Tebble Ltd measure the value in use of the cash-generating unit as $350,000. The fair value less cost of disposal of the entire unit is $320,000. Furthermore the value in use of the land is $115,000.

Required:

a) Calculate the recoverable amount and impairment loss of the cash generating unit.

b) Allocate the impairment loss to each of the assets in the cash generating unit and calculate the adjusted carrying amount of each asset. 

c) Prepare journal entries to account for the impairment loss. 

Question 7

Provide an argument in support of the accounting requirement that research is to be written off as incurred. Do you think this requirement is overly ‘conservative’? 

Question 8

Crossbow Ltd is an entity that specialises in the manufacture of leather footwear for women. It has aggressively undertaken a strategy of buying out other companies that had competing products. These companies were liquidated and the assets and liabilities brought into Crossbow Ltd.

At 30 June 2016, Crossbow Ltd reported the following assets in its statement of financial position:

In response to competition from overseas, as customers increasingly buy online rather than visit Crossbow Ltd’s stores, Crossbow Ltd assessed its impairment position at 30 June 2016. The indicators suggested that an impairment loss was probable. Crossbow Ltd calculated a recoverable amount of its company of $1 420 000.

Required

Prepare the journal entry(ies) for any impairment loss occurring at 30 June 2016.