Question

Problem 1

You have determined that one asset and one CGU should be testedfor impairment at December 31, 20x2.

Details on these are as follows:

Asset Carrying value $2,800,000

Fair value 2,200,000

Costs to sell are expected to be equal to 7% of fair value

The asset’s useful life is 10 years and is expected to generatecash flows of $350,000 per year.

CGU

Carrying value

Land $ 800,000

Building 2,500,000

Equipment 1,300,000

Goodwill 950,000

Total $5,550,000

Fair values

Land (costs to sell = 8% of fair value) $1,200,000

Building (costs to sell = 10% of fair value) 2,700,000

Equipment (costs to sell = 25% of fair value) 800,000

The remaining useful life of the building and equipment is 16years. The cash flows generated by the CGU are expected to be$360,000 per year.

Required –

Calculate the impairment loss, if any, assuming that the entityis subject to:

a. IFRS. If there is an impairment loss for the CGU, allocatethe impairment loss to the CGU’s assets.

b. ASPE

A discount rate of 6% should be used.