Question

Question: Viti Ltd has three divisions, Dairy, Yoghurt and Chocolate, which operate independently of each o... Viti Ltd has three divisions, Dairy, Yoghurt and Chocolate, which operate independently of each other to produce milk products. The company has a headquarters and a research centre located in Nausori, with the divisions located throughout Fiji. The research centre interacts with all the divisions to assist in the improvement of the manufacturing process and the quality of the products manufactured by the entity. There is not as yet any basis on which to determine how the work of the research centre will be allocated to each of the three divisions, as this will depend on priorities of the company overall and issues that arise in each division. The company headquarters provides approximately equal services to each of the divisions, but an immaterial amount to the research centre. Neither the headquarters nor the research centre generates cash inflows. On 30 June 2018, the net assets of Viti Ltd were as follows: Dairy Division Yoghurt Division Chocolate Division Head Office Research Centre Land $ 440,000 $ 280,000 $ 160,000 $ 110,000 $ 67,000 Plant and equipment 840,000 620,000 540,000 80,000 45,000 Accumulated depreciation (240,000) (200,000) (160,000) (10,000) (12,000) Inventories 240,000 180,000 140,000 0 0 Accounts receivable 120,000 100,000 60,000 0 0 1,400,000 980,000 740,000 180,000 100,000 Liabilities 120,000 100,000 100,000 0 0 Net Assets 1,280,000 880,000 640,000 180,000 100,000 Management of Viti Ltd believes there are economic indicators to suggest that the company’s assets may be impaired. Accordingly, they have had recoverable amount assessed for each of the divisions: Dairy Division $ 1,550,000 Yoghurt Division 1,000,000 Chocolate Division 750,000 The land held by Dairy division was measured at fair value using the revaluation model because of the specialised nature of the land. At 30 June 2018, the fair value was $440,000. The land held by Yoghurt division was measured at cost, and had a fair value less cost to sell of $270,264 at 30 June 2018. Required: Provide journal entries to account for the impairment of Viti Ltd as at 30 June 2018. Show all relevant working where required.

Answer 1

Ans.

Tabulation of Data provided in Question

Particulars	Dairy	Yogurt	Chocolate	HO	Research
Land	440,000	280,000	160,000	110,000	67,000
Plant and Equipment	840,000	620,000	540,000	80,000	45,000
Accumulated Depreciation	(240,000)	(200,000)	(160,000)	(10,000)	(12,000)
Inventories	240,000	180,000	140,000	Nil	Nil
Account Receivables	120,000	100,000	60,000	Nil	Nil
Total (A)	1,400,000	980,000	740,000	180,000	100,000
Liabilities (B)	120,000	100,000	100,000	Nil	Nil
Net Assets (A-B)	1,280,000	880,000	640,000	180,000	100,000

Since the recoverable value of Divisions is greater than its carrying amount, the divisions should not be impaired as a whole.

However, land held by Yogurt division should be impaired as its carrying amount is greater than recoverable amount. Impairment Loss on Land of Yogurt Division is $9,736.

Journal Entries

Date	Particulars	Amount	Amount
30.06.18	Impairment Loss A/c ...Dr. To Yogurt Division A/c	9,736	9,736
30.06.18	Statement of Profit and Loss A/c ...Dr. To Impairment Loss A/c	9,736	9,736