FRF7

Section B: Q18

Specimen exam

Q18 Section B

2 marks

Telepath Co has a year end of 30 September and owns an item of plant that it uses to produce and package pharmaceuticals.

The plant cost $750,000 on 1 October 20X0 and, at that date, had an estimated useful life of five years. A review of the plant on 1 April 20X3 concluded that the plant would last for a further three and a half years and that its fair value was $560,000.

Telepath Co adopts the policy of revaluing its non-current assets to their fair value but does not make an annual transfer from the revaluation surplus to retained earnings to represent the additional depreciation charged due to the revaluation.

On 30 September 20X3, Telepath Co was informed by a major customer that it would no longer be placing orders with Telepath Co. As a result, Telepath Co revised its estimates that net cash inflows earned from the plant for the next three years will be:

Year ended 30 September: $'000
20X4 220
20X5 180
20X6 200

Telepath Co’s cost of capital is 10% which results in the following discount factors:

Value of $1 at 30 September: $
20X4 0.91
20X5 0.83
20X6 0.75

Telepath Co also owns Rilda Co, a 100% subsidiary, which is treated as a cash generating unit.

On 30 September 20X3, there was an impairment to Rilda Co's assets of $3,500,000.

The carrying amount of the assets of Rilda Co immediately before the impairment were:

  $'000
Goodwill 2,000
Factory building 4,000
Plant 3,500
Receivables and cash (at recoverable amount) 2,500
12,000

Calculate the value in use of Telepath Co's plant at 30 September 20X3. Give your answer in $'000.

Input your answer in the following format, e.g. 123.4
(Don't use commas etc.)
$