Blizzard Ltd has a division that represents a separate cash generating unit. At 30 June 2017, the
Question:
Blizzard Ltd has a division that represents a separate cash generating unit. At 30 June 2017, the carrying amounts of the assets of the division, valued pursuant to the cost model, are as follows:
Assets: | $ |
Cash | 32,000 |
Motor vehicles | 300,000 |
Less: accumulated depreciation | (120,000) |
Plant and equipment | 200,000 |
Less: accumulated depreciation | (50,000) |
Land | 600,000 |
Inventory | 5,000 |
Accounts receivable | 13,000 |
Patent | 60,000 |
Goodwill | 15,000 |
Carrying amount of cash-generating unit | 1,055,000 |
The receivables were regarded as collectable, and the inventory is measured at the lower of cost and net realisable value. The patent has a fair value less costs to sell of $50,000, and the land has a fair value less costs to sell of $520,000.
The directors of Blizzard estimate that, at 30 June 2017, the fair value less costs to sell of the division amounts to $820,000, while the value in use of the division is $900,000.
Required:
Determine how Blizzard Ltd should account for the results of the impairment test at 30 June 2017, and prepare any necessary journal entries. Show all workings, explanations and provide references to the relevant accounting standard to support your answer.
Management and Cost Accounting
ISBN: 978-1292063461
6th edition
Authors: Alnoor Bhimani, Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan