(a) IAS 36, Impairment of Assets, was published in June 1998 Its primary objective is to ensure that an asset is not carried on the balance sheet at a value that is greater than its recoverable amount The Standard does not apply to inventories (including construction contracts) It replaces guidance...

a i An impairment loss arises where the carrying value of an asset or group of assets is higher than their recoverable amounts IAS 36 says that assets should not appear on a balance sheet at a value w ...

(a) IAS 36, Impairment of Assets, was published in June 1998. Its primary objective is to ensure...

Question:

(a) IAS 36, Impairment of Assets, was published in June 1998. Its primary objective is to ensure that an asset is not carried on the at a value that is greater than its recoverable amount. The Standard does not apply to inventories (including construction contracts). It replaces guidance given in several other International Financial Reporting Standards.
Required:
(i) Describe the circumstances where an impairment loss is deemed to have occurred and explain when companies should perform an impairment review of tangible and .
(ii) Describe the matters to be considered in assessing whether an asset may be impaired.
(b) Avendus is preparing its to 30 September 20X3. It has identified the fol¬lowing issues:
(i) Avendus owns and operates an item of plant that had a carrying value of $400 000 and an estimated remaining life of 5 years. It has just been damaged due to incorrect operation by an employee. It is not economic to repair the plant but it still operates in a limited capacity although it is now no longer expected to last for 5 years. As the plant is damaged it could only be sold for $50 000. The cost of replacing the plant is $1 million. The plant does not generate cash flows independently and is part of a group of assets that have a carrying value of $5 million and an estimated recoverable amount of $7 million.
Required:
Explain how the above item of plant should be treated in the of Avendus for the year to 30 September 20X3. Your answer should consider the situations where the plant continues to be used and where it would be replaced.
(ii) Avendus owns an investment property which has a remaining useful economic life of five years. The property has a carrying value of $200 000 on 30 September 20X3. It is currently let to Marchant at an annual rental of $50 000 per annum. A surveyor has estimated that Avendus could expect net proceeds of $165 000 from sale of the property. The lease and the rental are due for renegotiation on 1 October 20X3. There is currently a surplus of rental properties and this has affected rental incomes and selling prices considerably. Aware of this, Marchant has offered to rent the property for a further five years, but for an annual rental, payable in advance, of only $40 000. The rental would be payable in full on 1 October each year. The current of Avendus is 10% per annum, but current market assessments of a widely expected increase in interest rates means this will soon rise to 12% per annum. Avendus uses the cost method in IAS 40, Investment Property. The following information can be taken as correct:

Required:
Explain how the above investment property should be treated in the financial statements of Avendus for the year to 30 September 20X3.
Your answer should be supported with numerical calculations.
(iii) Avendus recently acquired a company called Fishright, a small fishing and fish processing company for $2 million. Avendus allocated the purchase consideration as follows:
$000
Goodwill..............................................240
Fishing quotas........................................400
Fishing boats (2 of equal value..................1 000
Other fishing equipment...........................100
Fish processing plant................................200
Net current assets....................................60
2 000
Shortly after the acquisition, one of the fishing boats sank in a storm and this has halved the fishing j capacity. Due to this reduction in capacity, the value in use of the fishing business as a going concern is I estimated at only $1.2 million. The fishing quotas now represent a greater volume than one boat can fish and it is not possible to replace the lost boat as it was rather old and no equivalent boats are available. However, the fishing quotas are much in demand and could be sold for $600 000. Avendus has been offered $250 000 for the fish processing plant. The net current assets consist of accounts receivable and payable.
Required:
Calculate the amounts that would appear in the consolidated financial statements of Avendus in respect of Fishright's assets after accounting for the impairment loss.

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