Question

Tuesday, December 2018 REVIEW QUESTION 2 A cash generating unit (CGU) comprising a factory, plant and equipment etc and associated purchased goodwill becomes impaired because the product it makes is overtaken by a technologically more advanced model produced by a competitor. The recoverable amount of the cash generating unit falls to Tshs. 60m, resulting in an impairment loss of Tshs.80m, allocated as follows: CA before impairment CA after impairment Tshs. (m) Tshs. (m) Goodwill 10 Patent (with no market value) 20 Tangible long-term assets 80 Total 140 After three years, the entity makes a technological breakthrough of its own, and the recoverable amount of the cash generating unit increases to Tshs. 90m. The carrying amount of the tangible long-term assets had the impairment not occurred would have been Tshs.70m. Required: a)State the allocation rule applied in the allocation of an impairment loss arises in a CGU with goodwill as per IAS 36. b)Calculate the amount of the original impairment loss of Tshs. 80m that can be reversed.

Answer 1

An Impairment loss is recognised to the extent the carrying amount of the asset exceeds its recoverable amount.

(ii). When CGU or group of CSUs, to which goodwill is allocated is tested for impairment, any impairement loss is allocated first to reduce the carrying amount of the goodwill. The remaining loss ( if any) is then allocated to other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU

The reversal of the impairment loss is recognised to the extent that it increases the carrying amount of the tangible non-current assets to what it would have been had the impairment not taken place, ie a reversal of the impairment loss of $10m is recognised and the tangible non-current assets written back to $70m.

Reversal of the impairment is not recognised in relation to the goodwill and patent because the effect of the external event that caused the Original impairment has not reversed