Reference no: EM133081158

Question 1: Cash-generating unit, reversal of impairment loss

Mace Ltd manufactures glass and glass products. Mace Ltd has organised itself into a number of divisions each of which has a different function. For example, one division deals with the manufacture of glass bottles for containing various drinks such as water and wine while another division produces bottles associated with the perfume industry. Each of these divisions is regarded as a separate cash-generating unit (CGU) for accounting purposes.

One of the divisions of Mace Ltd is associated with the production of glass used for the bottling of fruit products. At 30 June 2015, the carrying amounts of the assets of this division were as follows:

Non-current assets        Glass bottling factory        Accumulated depreciation - buildings        Equipment        Accumulated depreciation - equipment        Goodwill Current assets        Inventory        Receivables        Cash

$336000 (144 000) 176000 (32000) 12000   64000 28000 16000

At 30 June 2015, Mace Ltd was concerned that the assets of this division were impaired. Many fruit products were now being bottled in plastic rather than glass meaning that the demand for glass bottles for bottling fruit had suffered a decline. Subsequent to assessing the indicators of impairment, Mace Ltd believed that the assets of the division were impaired. Mace Ltd calculated the recoverable amount of the fruit-bottling division to be $428 000.

In preparing the financial statements at 30 June 2015 Mace Ltd allocated the impaired loss to the relevant assets, assuming the receivables were collectable. Mace Ltd also changed its method of measuring the depreciation of the factory and equipment for the 2015-16 period, increasing the depreciation charge on the factory from $48 000 to $52000 p.a., and from $36 000 to $40000 p.a. for equipment.

During the 2015-16 period, the market experienced dissatisfaction with the use of plastic for the bottling of fruit as users were worried about contamination if held for long periods. As a result the market demand for glass bottles increased. Mace Ltd believed that it could reverse the previous impairment and assessed the recoverable amount of the division at $24 000 greater than the carrying amount of the assets of the unit. For the 2015-16 financial statements, Mace Ltd accounted for a reversal of the previous impairment loss.

Required
A. Prepare the journal entry(ies) for Mace Ltd at 30 June 2015 for the impairment of the assets.
B. (i) Prepare the journal entry(ies) for Mace Ltd at 30 June 2016 for reversal of the prior impairment loss.
(ii) What differences would occur in this entry(ies) if the recoverable amount at 30 June 2016 was $16000 greater than the carrying amount of assets of the division?
(iii) If the recoverable amount of the factory at 30 June 2016 was $140000, how would this change the entry(ies) in B(ii)?

Question 2: Reversal of impairment losses

Saxon Ltd conducted an impairment test at 30 June 2015. As a part of that exercise, it measured the recoverable amount of the entity, considered to be a single cash-generating unit, to be $217 600. The carrying amounts of the assets of the entity at 30 June 2015 were:

Equipment Accumulated depreciation Patent Goodwill Inventory Receivables

200000 (40000) 40 000 6 400 32000 1 600

The receivables held by Saxon Ltd were all considered to be collectable. The inventory was measured in accordance with AASB 102 Inventories.
For the period ending 30 June 2016, the depreciation charge on equipment was $14 720. If the equipment had not been impaired the charge would have been $20 000.
At 30 June 2016, the recoverable amount of the entity was calculated to be $10 400 greaterthan the carrying amount of the assets of the entity. As a result, Saxon Ltd recognised a reversal of the previous year's impairment loss.

Required
Prepare the journal entry(ies) accounting for the impairment loss at 30 June 2015 and the reversal of the impairment loss at 30 June 2016.

Question 3: Cash-generating units, corporate assets, goodwill

Camelot Ltd is in the business of manufacturing children's toys. Its operations are carried out through three operating divisions, namely the Merlin Division, the Hollow Division and the Hills Division. These divisions are separate cash-generating units. In accounting for any impairment losses, all central management assets are allocated to each of these divisions.

At 31 July 2016, the assets allocated to each division were as follows:

		Merlin CGU		Hollow CGU		Hills CGU
	Buildings Accumulated depreciation Land Machinery Accumulated depreciation Inventory Goodwill Head Office assets	$656 (336) 160 240 (48) 96 32 160		$600 (304) 240 328 (256) 64 40 120		$368 (272) 120 448 (248) 80 24 96

In relation to land values, the land relating to the Merlin and Hills Divisions have carrying amounts less than their fair values as stand-alone assets. The land held by the Hollow Division has a fair value less costs of disposal of $234.

Camelot Ltd determined the recoverable amount of each of the cash-generating units at 31 July 2016 as follows:

Merlin Hollow Hills

$936 720 640

Required
Prepare the journal entry(ies) for Camelot Ltd to record any impairment loss at 31 July 2016.