Reference no: EM132982366

a) Explain the term recoverable amount according to IAS 36 'Impairment of Assets.'

(b) LXX Ltd has a division that qualifies as cash-generating unit (CGU) and is tested for impairment annually at the end of the fiscal year, which is 31 December. The assets of the CGU have the following carrying amounts on 31 December 2019:

Carrying amount Goodwill 50

Other intangible assets 232

Accumulated amortization 37

Property, plant and equipment 418

Accumulated depreciation 63

Other non-current assets 50

Throughout the question, values are denoted in £ millions. On 31 December 2019, MPX Ltd determined the recoverable amount of the CGU to be £496. At the end of the fiscal year 2019, the fair value less costs of disposal of other intangible assets was £170; the fair value less costs of disposal of property, plant and equipment was £250; and the fair value less costs of disposal of other non-current assets was £40. For each asset category, the value in use could either not be determined or fell below the fair value less costs of disposal. LXX Ltd accounts for other intangible assets and property, plant and equipment using the cost model.

i) Conduct the impairment test for the CGU for the fiscal year-end 31 December 2019. If applicable, allocate any resulting impairment loss to the assets of the CGU. Explain each of your steps. ii) Prepare journal entries for the proposed accounting treatment from i).

c) Now assume that LXX Ltd does not account for property, plant and equipment using the cost model [as in b)] but the revaluation model. Further assume that the balance in the revaluation reserve from previous value increases of property, plant and equipment amounted to £100 on 31 December 2019. Explain how your solution for b) changes. And provide a journal entry to illustrate your points.

(iv) Identify, explain and assess four alternative measurement (valuation) bases to historical cost. Give the advantages and disadvantages of each measurement basis identified.