Question

Skysong Ltd. is a manufacturer of computer network equipment and has just recently adopted IFRS. The wireless division is a cash-generating unit or asset group that has the following carrying amounts for its net assets: land, $21,700; buildings, $30,530; and equipment, $12,470. The undiscounted net future cash flows from use and eventual disposal of the wireless division are $64,500, and the present value of these cash flows is $42,000. The land can be sold immediately for $31,500; however, the buildings and equipment are specialized and cannot be used elsewhere and thus have no resale value.

Answer 1

Land	21700
Buildings	30530
Equipment	12470
Carrying value	64700
Undiscounted cash flows	64500
Value in use	42000
Fair value
land	31500
Equipment	-
Buildings	-
	31500
Under ASPE=-testing for impairment is a two- step process
Compare the carrying value of the asset group to the expected undiscounted cash flows
If the carrying value is more than the undiscounted cash flows, then compare value and record an impairment loss if the carring amount is greater than the fair value
If the carrying value is less than the undiscounted cash flows, no impalment is required
Since carrying value is less that the undiscounted cash flows, no impalment is required. Hence the recoverable amount will be equal to carrying value
Hence recoverable amount=	64700
Carrying value	64700
Impairment loss	-
Journal entry
	Debit	Credit
Impairment loss	Nil
Accumulated Impairment losses		Nil
Under IFRS- the asset or CGU is impaired if its carrying amount exceeds its recoverable amount. Hence the recoverable amount is defined as the higher of the 'fair value less costs to sell' and the 'value in use'
The recoverable amount is the higher of the 'fair value less costs to sell' and the 'value in use'
Fair value	31500
Value in use	42000
Recoverable amount	42000
Carrying value	64700
Impairment loss	22700
The impairment loss is allocated to assets of the CGU pro rate on the basis of the carrying amount of each asset in the CGU
However, in allocating the above impairment loss, the carrying amount shall not be reduced below the asset's fair value less costs to sell, or, if there is no fair value less costs to sell for that asset, or carrying value is less than fair value, then not below zero
This may lead to a residue of the impairment loss. The residue of the impairment loss not allocated because of the above shall be allocated: (a) Firstly, to assets whose fair value less costs to sell is less than their carrying amount, on a pro rate basis based on their new carrying amount, and (b) Secondly, to the other assets of the CGU on a pro rate basis on the new carrying amount of each asset in the unit to which the excess amount of impairment loss is allocated.
	Carrying value	weight	Impairment loss allocation	fair value	residual loss	revised carrying value	First allocation of carry forward loss, to assets whose fair value less costs to sell is less than their carrying amount
Land	21700	33.33%		31500		21700	-
Buildings	30530	50.00%	0	0		30530	13483
Equipment	12470	16.67%	0	0		12470	4494
	64700				22700	64700	22700
	Debit	Credit
Impairment loss	22700
Accumulated impairment losses- buildings		13483
Accumulated impairment losses-Equipment		4494