AB, a public limited company, has decided to comply with IAS 36 Impairment of Assets. The following information is relevant to the impairment review:
(i) Certain items of machinery appeared to have suffered a permanent diminution in value. The inventor y produced by the machines was being sold below its cost and this occurrence had affected the value of the productive machinery. The carrying value at historical cost of these machines is $290,000 and their net selling price is estimated at $120,000. The anticipated net cash inflows from the machines are now $100,000 per annum for the next three years. A market discount rate
 of 10% per annum is to be used in any present value computations.
(ii) AB acquired a car taxi business on 1 January 20X1 for $230,000. The values of the assets of the business at that date based on net selling prices were as follows:
$000
Vehicles (12 vehicles) ...... 120
Intangible assets
 (taxi license) .... 30
Trade receivables ......... 10
Cash ............. 50
Trade payables ........ (20)
190
On 1 February 20X1, the taxi company had three of its vehicles stolen. The net selling value of these vehicles was $30,000 and because of non-disclosure of certain risks to the insurance company, the vehicles were uninsured. As a result of this event, AB wishes to recognize an impairment loss of $45,000 (inclusive of the loss of the stolen vehicles) due to the decline in the value in use of the cash generating unit that is the taxi business. On 1 March 20X1 a rival taxi company commenced business in the same area. It is anticipated that the business revenue of AB will be reduced by 25% leading to a decline in the present value in use of the business, which is calculated at $150,000. The net selling value of the taxi license has fallen to $25,000 as a result of the rival taxi operator. The net selling values of the other assets have remained the same as at 1 January 20X1 throughout the period.

Required:
Describe how AB should treat the above impairments of assets in its financial statements.n

Answer rating: 100% (QA)

Impairment of the car taxi business treated as a CGI Impairment losses should b... View the full answer