Question

On 30 June 2020, the statement of financial position of Wolfe Ltd showed the following non- current assets after charging depreciation: Land $400,000 Buildings $200,000 Accum. depn. - buildings (100,000) $100,000 Equipment $150,000 Accum. depn. - equipment (50.000) $100,000 Goodwill $40,000 The company has adopted fair value for the valuation of non-current assets. In the previous year, the company had valued land down from its original value of $410,000 to $400,000. On 30 June 2020, and independent valuer assessed the fair value of the Land to be $420,000 and that of the building to be $180,000. The equipment asset was a cash-generating asset made up of the following three individual assets: Asset Carrying amount Machine A $30,000 Machine B $25,000 Machine C $45,000 Of the total recognized goodwill of $40,000, Wolfe Ltd had allocated $10,000 to the equipment cash-generating asset. No goodwill had been allocated to either Land or Buildings. REQUIRED (a) Prepare any necessary entries to revalue the land and the buildings for the year ended 30 June 2020. (11 marks) (b) On 30 June 2020, Wolfe Ltd determined that the equipment cash-generating unit required an impairment charge of $70,000. Prepare any entries to record the impairment of the cash-generating unit. You must show the detail at the component asset level (i.e., prepare entries for Machines A, B, and C). (6 marks) (c) In addition to the information contained in part (b) above, assume that on 30 June 2020, Wolfe Ltd determined that the recoverable amount of Machine A was $15,000. Prepare any entries to record the impairment of the cash-generating unit based on this new information. Note these entries are those you would make instead of those you made in answering part (b) above. You must show the detail at the component asset level (i.e., prepare entries for Machines A, B, and C). (4 marks)

Answer 1

A)entries to revalue land and biulding for the year ended 30 june 2020

for the land

Dr Land aaccount $10000

Cr Revaluation account $10000

for the Buildiing

Dr Revaluation account $20000

Cr Building account $20000

B) cash generating unit

good will $10000

machinery A $30000

machinery B $25000

machinery C $45000

first impairment charge against the goodwill amount $10000 so remaining impairment charge is $60000

it wil, charge against the equipment on pro-rata basis

Machinery A = 30000/100000*60000 = 18000

Machinery B = 25000/100000*60000 = 15000

Machinery C = 45000/100000*60000 = 27000

entries to charge the impairment against the MAchinery

Dr Impairment loss account $70000

Cr Machinery A $18000

Cr Machinery B $15000

Cr Machinery C $27000

Cr Goodwill $10000

C) if Machinery A has recoverable amount was $15000

good will $10000

machinery A $30000

machinery B $25000

machinery C $45000

and the impairment is $70000

first charge against the machinery A,it has recoverable value is 15000 so charge 15000 impairment on Machinery A

second charge against the Goodwill $ 10000

remaining the impairment charge is $ =70000-15000-10000 = $ 45000 and it will charge based on pro-rata basis basis on the remaining machinery

machinery B = 25000/70000*45000 = 16071

machinery C = 45000/70000*45000 = 28929

entries to record the impairment charge

Dr impairment charge $70000

Cr Machinery A $15000

Cr Machinery B $16071

Cr Machinery C $28929

Cr Goodwill $10000