Question

Just explain the part I added red notice for it( please show me numbers, the calculation, what to add multiple, dividend to get this result

Refrence

Deegan. (2016). Financial Accounting . McGraw-Hill Education, Australia

REVIEW QULSIUN TWELVE Zoro Ltd has determined that its China division is a cash-generating unit. The carrying amounts of the assets at 30 June 2014 are as follows: Factory Land Equipment Machinery $210,000 $150,000 $120,000 $60,000 Zoro Ltd calculated the value in use of the division to be $510,000 and net selling price of $480,000. Required: Prepare the appropriate journal entries for the impairment loss, assuming that the fair values less cost to sell of the land are: a) $140,000 b) $145,000

Answer 1

1.The impairment loss is the difference between the net carrying value of the asset and fair value of the asset or value in use of the asset (whichever is greater) net of disposable cost i.e Recoverable amount = fair value of the asset or value in use of the asset (whichever is greater) - disposable cost (if any)

2.In the given case the cash generating units carrying value is 540,000 but the value in use is 510,000 while the fair value of the cash generating unit is 480,000

3.As the value in use is greater than fair value the recoverable amount is 510,000 So, impairment loss = 540,000-510,000 = 30,000.

4.Coming to the point you have underlined the impairment loss is divided among the assets under the cash generating unit on the basis of their carrying value.

5.As there is no information about the specific impairment losses of assets in cash generating unit it is divided among the assets under the cash generating unit on the basis of their carrying value.

6.Subsequently in the question the details regarding the specific impairment loss of the land is given hence the remaining impairment loss (30,000 - 5,000 = 25,000) is shared among the remaining of the assets i.e assets other than land in their carrying value ratio.

7.The ratio of the remaining assets are given below :

• Factory = 210,000/ sum of the remaining assets = 210,000/390,000 = 21:39 or 21/39
• Equipment = 120,000/390,000 = 12:39 or 12/39
• Machinery = 60,000/390,000 = 6:39 or 6/39

8.In the solution it is given as 390,000 which is possibly due to typing error.