Reference no: EM132472326

A cash generating unit (CGU) comprising a factory, plant and equipment etc and associated purchased goodwill becomes impaired because the product it makes is overtaken by a technologically more advanced model produced by a competitor.

The recoverable amount of the cash generating unit falls to Tshs.60m, resulting in an impairment loss of Tshs.80m, allocated as follows:

                                                 CA before impairment                             CA after impairment

                                                                         Tshs. (m)                                              Tshs. (m)

Goodwill                                                       40                                              0

Patent (with no market value)                          20                                              0

Tangible long-term assets                                80                                            60

Total                                                          140                                             60

After three years, the entity makes a technological breakthrough of its own, and the recoverable amount of the cash generating unit increases to Tshs.90m. The carrying amount of the tangible long-term assets had the impairment not occurred would have been Tshs.70m.

Required:

Question a) State the allocation rule applied in the allocation of an impairment loss arises in a CGU with goodwill as per IAS 36.

Question b) Calculate the amount of the original impairment loss of Tshs. 80m that can be reversed.