Question

Question #5-Asset Impairment The abrasives group of Chemical Products Inc. (CPI) has been suffering a decline in its business, due to new product introductions by competitors. At 31 December 20X5, the assets of the abrasives cash generating unit are shown as follows (in millions) on the company's SFP: Cost Accumulated Net Book Depreciation Value Equipment (10-year life) Fixtures (10-year life) Patent rights (40-year life) 400 $180 220 125 55 70 80 70 10 $605 $305 $300 An impairment test indicates that the recoverable amount of the abrasives cash-generating unit's assets is $200 million. The assets are not separable-they must be operated or sold together individual asset has a determinable individual fair value less cost to sell. group. No as a Required: 1. Prepare an adjusting journal entry to record the impairment. 2. What would be the net book value of the assets after one year if no impairment was recorded? Assume that straight-line depreciation is used. 3. After one year, the recoverable amount is reassessed because of changes in the competitive market, and is found to be higher than $200 million. Describe how the impairment reversal would be allocated to the various assets of the unit

Answer 1

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