One of the cash-generating units of Gotcha Fish Ltd is associated with the manufacture of fishing equipment.
Question:
One of the cash-generating units of Gotcha Fish Ltd is associated with the manufacture of fishing equipment. On 30 June 2020, Gotcha Fish Ltd believed, based on an analysis of economic indicators, that the assets of the unit may be impaired. The carrying amounts of the assets and liabilities of the unit at 30 June 2020 were:
Cash $ 40,000
Trade Receivables 20,000
Allowance for doubtful debts (5,000)
Inventory 80,000 Plant 230,000
Accumulated depreciation - plant* (50,000)
Buildings 480,000
Accumulated depreciation - buildings** (240,000)
Land 100,000 Goodwill 25,000
Accounts payable 40,000
Loans 35,000 *depreciated at (p.a.) $50,000 **depreciated at (p.a.) $60,000
Gotcha Fish Ltd determined the value in use of the unit to be $605,000. The trade receivables were considered to be collectible, except those considered doubtful. The plant had a fair value fewer costs to the selling of $170,000. The company allocated the impairment loss in accordance with AASB 136. During the 2020-21 period, Gotcha Fish Ltd increased the depreciation charge on the plant to $55,000 p.a. and to $65,000 p.a. for the buildings. The inventory on hand on 1 July 2020 was sold by the end of the year. On 30 June 2021, Gotcha Fish, because of an observable return in the market of the use of fishing equipment, assessed the recoverable amount of the cash-generating unit to be $50,000 more than the carrying amount of the unit. As a result, Gotcha Fish Ltd recognized a reversal of the impairment loss. On 30 June 2021, the recoverable amount of the land was $95,000.
a) Determine if the assets of the CGU are impaired and, if so, by how much. Show all workings
b) Calculate the allocation of any impairment to the assets of the CGU. Show all workings and explain, with reference to AASB 136, your treatment of various items.
c) Provide an appropriate journal entry for 30/6/2020
d) Determine the allocation of the impairment reversal in 2021. Show all workings and explain, with reference to AASB 136, your treatment of various items.
e) Provide the relevant journal entries for 30/6/2021
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young