Vertigo Ltd has two divisions, Concept and Express. Each of these is considered a separate CGU (Cash
Question:
Vertigo Ltd has two divisions, Concept and Express. Each of these is considered a separate CGU (Cash Generating Unit). As of 31 December 2019, the book values of the assets of the two segments are as follows.
Concept ($) | Express ($) | |
Plant | 1500 | 1200 |
Accumulated Depreciation | (650) | (375) |
Patent | 240 | |
stocks | 54 | 75 |
receivables | 75 | 82 |
Goodwill | 25 | 20 |
The receivables are considered collectible and the fair value of the inventories, less costs of disposal, is equal to the carrying amount. The fair value of the patent minus the costs of disposal is $220. Plant at Concept depreciated at $300 per year Factory at Express depreciated at $250 per year Vertigo Ltd conducted an impairment test on 31 December 2019 and determined the recoverable amounts of the two segments as follows.
Concept ($) | 1044 |
Express ($) | 990 |
As a result, management increased the Concept factory's depreciation from $300 to $350 per year for 2019.
As of 31 December 2020, the performance of both segments has improved and the book values and recoverable amounts of the assets of both segments are as follows.
Concept | To express | |
Carried value | 1322 | 1433 |
Recoverable Amount | 1502 | 1520 |
Necessary
Determine how Vertigo Ltd should account for the results of impairment tests as of both December 31, 2019 and December 31, 2020.
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones