The following table summarises the assets (in ,000) the Pure Science Division ( a separate cash-generating...

 

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The following table summarises the assets (in £,000) the Pure Science Division ( a separate cash-generating unit) at December 31, Year 5, prior to testing goodwill for impairment. Property, Plant and Equipment and Other Intangibles are amortised on a straight-line basis over an average useful life of 15 years and 4 years, respectively. Management has estimated the present value of future cash flows from operating the Pure Science Division to be £1.35 million. No fair market value is available. Carrying amount, 12/31/Y4 Amortization expense, Year 5 Subtotal Goodwill Property, Plant, and Equipment £1,500 £800 0 £800 £100 £1,400 Other Intangibles £500 £90 £410 Total £2,800 190 £2,610 Required: a) Work out the impairment amounts and carrying values at December 31 Year 5 for each component in the CGU. [8 marks] b) Due to favourable changes in export laws, management revises its estimates of the value in use for the Pure Science Division at December 31, Year 6 to be £1.85 million. Work out the impairment loss/recovery amounts and carrying values at December 31 Year 6 for each component in the CGU. [7 marks] c) What, if anything, is the difference between recoverable amount and fair value? Where revaluations are undertaken, can a reporting entity use 'value in use' as the basis for the revaluation? [5 marks] The following table summarises the assets (in £,000) the Pure Science Division ( a separate cash-generating unit) at December 31, Year 5, prior to testing goodwill for impairment. Property, Plant and Equipment and Other Intangibles are amortised on a straight-line basis over an average useful life of 15 years and 4 years, respectively. Management has estimated the present value of future cash flows from operating the Pure Science Division to be £1.35 million. No fair market value is available. Carrying amount, 12/31/Y4 Amortization expense, Year 5 Subtotal Goodwill Property, Plant, and Equipment £1,500 £800 0 £800 £100 £1,400 Other Intangibles £500 £90 £410 Total £2,800 190 £2,610 Required: a) Work out the impairment amounts and carrying values at December 31 Year 5 for each component in the CGU. [8 marks] b) Due to favourable changes in export laws, management revises its estimates of the value in use for the Pure Science Division at December 31, Year 6 to be £1.85 million. Work out the impairment loss/recovery amounts and carrying values at December 31 Year 6 for each component in the CGU. [7 marks] c) What, if anything, is the difference between recoverable amount and fair value? Where revaluations are undertaken, can a reporting entity use 'value in use' as the basis for the revaluation? [5 marks]

Answer rating: 100% (QA)

Solution Impairment loss An impairment loss is a recognized reduction in the carrying amount of an asset that is triggered by a decline in its fair va... View the full answer