Question

Fancy Retailing (FR) is a division of Huge Wholesale Corp. (HWC). Items of note for the company are as follows:  HWC reports its financial results in accordance with IFRS.  HWC’s year end is December 31.  FR is a cash-generating unit (CGU).  HWC uses the cost model to report its property, plant and equipment and intangible assets. HWC tested the FR assets for impairment on December 31, 20X6. In conjunction with this impairment test, HWC compiled the following data (all amounts are in ’000s): Asset Net book value Value in use Fair value less costs of disposal Land $ 6,000 $ 12,000* Buildings 10,000 Equipment 4,000 3,000 Patent 2,000 2,100 Goodwill 2,500 ? $ 24,500 $ 20,000 * The $12,000 is the combined fair value of the land and buildings sold in a single transaction. Which of the following statements is true with respect to the journal entry resulting from the December 31, 20X6, impairment test? a) An impairment loss of $182 must be recognized on the patent. b) An impairment loss of $1,000 must be recognized on the building. c) An impairment loss of $1,102 must be recognized on the land. d) The total impairment loss that must be recognized is $7,400.

Answer 1

Solution:

Below Statement is correct
d) The total impairment loss that must be recognized is $7,400. Workings is given below:
			(in USD'000)
Particulars	Book value	Fair value	Impairment loss
Land	6000
Building	10000	12000
Equipment	4000	3000
Patent	2000	2100
Goodwill	2500	0
	24500	17100	7400