Reference no: EM133083305

Question: 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 Lid is associated with the production of glass used for the botling 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 $ 336000
Accumulated deprecation - buildings 11440001
Equipment 176000
Accumulated depreciation - equipment 02000/
Goodwill 12000
Current assets
Inventory 64000
Receivables 28000
Cash 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 calculate 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 $48000 to $52 000 p.a.. and from $36000 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 o( the division at $240(0 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 $16(00 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)?