Reference no: EM132951178
Question - IMPAIRMENT OF NONFINANCIAL ASSETS -
Q1. On December 31, 2017, Mal Corp. believed that the assets of its cash-generating unit were impaired. The carrying amounts of the unit at December 31, 2017 were:
Buildings, net (60,000 depreciation per year) P240,000
Machinery, net (45,000 depreciation per year) 180,000
Goodwill 15,000
Inventory 80,000
Receivables, net (allowance of 5,000) 35,000
Cash 10,000
Total 570,000
Mal determined the value in use of the CGU was P535,000. The receivables were considered to be collectible except those considered doubtful. During 2018, Mal increased the depreciation charge on the buildings to P65,000 and P50,000 for the machinery. The inventory on hand at December 31, 2016 was sold by the end of 2018. At December 31, 2018, the recoverable amount of the CGU was P20,000 greater than the carrying amount of the unit in 2017.
1) Compute for the carrying amount of the buildings at December 31, 2017 after allocating impairment loss.
2) Compute for the carrying amount of the machinery at December 31, 2018 after reversal of impairment loss.
Q2. Mink Co. purchased a machine on January 2, 2015 for P500,000. The machine has an estimated useful life of 8 years and a salvage value of P50,000. Depreciation was computed by the 200% declining balance method. During December 2018, Twin determined that there had been a significant decrease in the market value of its machine. At December 31, 2018, Mink compiled the following information on its machine:
Expected undiscounted net future cash inflows from continued use and eventual disposal P160,000
Expected discounted net future cash inflows from continued use and eventual disposal 120,000
Fair value less cost of disposal 130,000
3) Compute for the impairment loss that should be recognized in the 2018 profit or loss.
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