Timmons Limited built a plant facility and started commercial production in January 2014. The plant facility had
Question:
Timmons Limited built a plant facility and started commercial production in January 2014.The plant facility had a capital cost of $4,600,000.The capital assets were depreciated, starting in2014, on a straight-line basis assuming a residual value of 10% of the original cost, a 20-yearuseful life for the plant facility. Timmons claimed a full year of depreciation in 2014 and has not yet recorded depreciation for 2018.
In December 2018, the market for Timmons’ products declined precipitously because of a significant improvement in similar new competing products that are being sold for a lower price. Operations in the plant were suspended while inventory was reduced.
Assume that the plant facility is an asset group for the purposes of determining a write down, if any.
The fair value of this asset group is $3,449,080.If the asset group were sold, Timmons would incur a 2% brokerage fee along with legal and other selling costs of $144,000.
The following probability-weighted future cash flow information is available (assume all cashflows occur at the end of the year, unless otherwise noted)
The relevant discount rate is 7%. Because of the various changes in the business, Timmons anticipates that it will now use the plant facility and equipment until December 2023.
REQUIRED:
Assume the assets are being accounted for under the cost model (as opposed to the revaluation model). Answer the following questions:
- Under IFRS, what is the equivalent terminology for an “asset group” when considering impairment of property, plant and equipment? Do not use an abbreviation.
- What is the definition of “recoverable amount”? Compute the recoverable amount of the CGU in this question. Show your work.
- Ignore your answer to part 2. Assume the “value in use” amount for this CGU is $3,300,000. Prepare the journal entry to record the write down of this CGU.
- Under IFRS, can this impairment write down be reversed?
Mathematical Applications for the Management Life and Social Sciences
ISBN: 978-1305108042
11th edition
Authors: Ronald J. Harshbarger, James J. Reynolds