(a) The objective of IAS 36 Impairment of assets is to prescribe the procedures that an...

Transcribed Image Text:

(a) The objective of IAS 36 Impairment of assets is to prescribe the procedures that an entity applies ensure that its assets are not impaired. Required: Explain what is meant by an impairment review and describe the indicators of an impairment and ho impairment losses are allocated to assets that may form a cash-generating (5 marks) unit. (b) Tilda plc prepares its financial statements at 31" December each year. During the year, there was an industrial accident (a gas explosion) that damaged some of Tilda's plant. The assets of Tilda immediately before the accident were: £'000 Goodwill 1,800 Patent 1.200 Factory building Plant 4,000 2,000 Accounts receivables 1,500 Total 10,500 As a result of the accident, the recoverable amount of Tilda is £7.5 million. Tilda has an open offer from a competitor of £1.5 million for its patent. The accounts receivables are stated at their fair values less costs to sell (i.e., net realisable value). The whole company is considered as a cash-generating unit. Required: Calculate the carrying amounts of the assets at 31 December 2020 after applying any impairment losses, if any, giving your reasons. (15 marks) (c) Wyse plc is a farm management company, and the following information is available in respect of the year ended 31st December 2020. • On 1t April 2020, Wyse plc acquired an operator's licence for a fleet of 20 heavy goods vehicles to set up a haulage division. The price paid for the licence, which is for 5 years, was £3,000 per vehicle. In addition to the initial price, Wyse plc spends £4,000 each year advertising the haulage division. (5 marks) • During the year, Wyse plc began the development of a new type of organic crop spray. The costs incurred on this project in the year amounted to £40,000. The research manager believes that the product will be both technically feasible and commercially viable. However, the product is still at an early stage, and it is not certain how long it will be before it can be marketed. (5 marks) Required: Explain and justify your answer how each of the above items should be dealt with in Wyse's income statement for the year ended 31 December 2020 and statement of financial position as at that date. (a) The objective of IAS 36 Impairment of assets is to prescribe the procedures that an entity applies ensure that its assets are not impaired. Required: Explain what is meant by an impairment review and describe the indicators of an impairment and ho impairment losses are allocated to assets that may form a cash-generating (5 marks) unit. (b) Tilda plc prepares its financial statements at 31" December each year. During the year, there was an industrial accident (a gas explosion) that damaged some of Tilda's plant. The assets of Tilda immediately before the accident were: £'000 Goodwill 1,800 Patent 1.200 Factory building Plant 4,000 2,000 Accounts receivables 1,500 Total 10,500 As a result of the accident, the recoverable amount of Tilda is £7.5 million. Tilda has an open offer from a competitor of £1.5 million for its patent. The accounts receivables are stated at their fair values less costs to sell (i.e., net realisable value). The whole company is considered as a cash-generating unit. Required: Calculate the carrying amounts of the assets at 31 December 2020 after applying any impairment losses, if any, giving your reasons. (15 marks) (c) Wyse plc is a farm management company, and the following information is available in respect of the year ended 31st December 2020. • On 1t April 2020, Wyse plc acquired an operator's licence for a fleet of 20 heavy goods vehicles to set up a haulage division. The price paid for the licence, which is for 5 years, was £3,000 per vehicle. In addition to the initial price, Wyse plc spends £4,000 each year advertising the haulage division. (5 marks) • During the year, Wyse plc began the development of a new type of organic crop spray. The costs incurred on this project in the year amounted to £40,000. The research manager believes that the product will be both technically feasible and commercially viable. However, the product is still at an early stage, and it is not certain how long it will be before it can be marketed. (5 marks) Required: Explain and justify your answer how each of the above items should be dealt with in Wyse's income statement for the year ended 31 December 2020 and statement of financial position as at that date.

Answer rating: 100% (QA)

a The objective of I AS 36 Imp air ment of assets is to prescribe the procedures that an entity applies ensure that its assets are not impaired Required Expl ain what is meant by an impairment review ... View the full answer