Cash Generating Units 2 / 2

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MC Question 19

The accountant has decided that it is too difficult to reliably attribute cash flows to this one machine and that it would
be more accurate to calculate the impairment on the basis of the factory as a cash-generating unit.

In accordance with IAS 36, which of the following is TRUE regarding cash generating units?

A

A cash-generating unit to which goodwill has been allocated should be tested for impairment every five years

B

A cash-generating unit must be a subsidiary of the parent

C

There is no need to consistently identify cash-generating units based on the same types of asset from period to period

D

A cash-generating unit is the smallest identifiable group of assets for which independent cash flows can be identified

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MC Question 20

Aphrodite Co has a year end of 31 December and operates a factory which makes computer chips for mobile phones.

It purchased a machine on 1 July 20X3 for $80,000 which had a useful life of ten years and is depreciated on the
straight-line basis, time apportioned in the years of acquisition and disposal.

The machine was revalued to $81,000 on 1 July 20X4.

There was no change to its useful life at that date.

A fire at the factory on 1 October 20X6 damaged the machine leaving it with a lower operating capacity.

The accountant considers that Aphrodite Co will need to recognise an impairment loss in relation to this damage.

The accountant has ascertained the following information at 1 October 20X6:

(1)

The carrying amount of the machine is $60,750.

(2)

An equivalent new machine would cost $90,000.

(3)

The machine could be sold in its current condition for a gross amount of $45,000. Dismantling costs would amount
to $2,000.

(4)

In its current condition, the machine could operate for three more years which gives it a value in use figure of
$38,685.

On 1 July 20X7, it is discovered that the damage to the machine is worse than originally thought.

The machine is now considered to be worthless and the recoverable amount of the factory as a cash-generating unit is estimated to be $950,000.

At 1 July 20X7, the cash-generating unit comprises the following assets:

$’000
Building500
Plant and equipment (including the damaged machine at a carrying amount of $35,000)335
Goodwill85
Net current assets (at recoverable amount)250
Net current assets (at recoverable amount)
1,170

In accordance with IAS 36, what will be the carrying amount of Aphrodite Co’s plant and equipment when the
impairment loss has been allocated to the cash-generating unit?

A     $262,500
B     $300,000
C     $237,288
D     $280,838

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MC Question 12

The net assets of Fyngle, a cash generating unit (CGU), are:

$
Property, plant and equipment200,000
Allocated goodwill50,000
Product patent20,000
Net current assets (at net realisable value)30,000
300,000

As a result of adverse publicity, Fyngle has a recoverable amount of only $200,000.

What would be the value of Fyngle’s property, plant and equipment after the allocation of the impairment loss?

A     $154,545
B     $170,000
C     $160,000

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