ACCY 200 Chapter 9 solutions

QUESTION 9.2
NARRABRI LTD

The carrying amount of the assets of the Toy Train Division is $500 000. If the value in use is $423 000, then there is an impairment loss of $77 000.

The impairment loss is firstly used to write off the goodwill - $50 000. The balance of the loss - $27 000 – is allocated across the other assets, except for inventory assuming it is recorded at the lower of cost and net realisable value:

Carrying Proportion Allocation Net Carrying Amount of Loss Amount Factory 250 000 5/6 22 500 227 500 Brand 50 000 1/6 4 500 45 500 300 000 27 000

The journal entry to record the impairment loss is:

Impairment loss Dr 77 000 Goodwill Cr 50 000 Accumulated depreciation and impairment losses –factory Cr 22 500 Accumulated amortisation and impairment losses –brand Cr 4 500 (Allocation of impairment loss)

QUESTION 9.7
MILES LTD

Jericho Jackson Plant $850 825 Patent 240 0 Inventory 54 75 Receivables 75 82 Goodwill 25 20 1 244 1 002 Value in use 1 044 990 Impairment loss (200) (12)

In relation to Jackson, write goodwill down by $12:

Impairment loss Dr 12 Accumulated impairment losses - goodwill Cr 12

In relation to Jericho, reduce goodwill by $25 and allocate the remaining $175 impairment loss to applicable assets:

Carrying Proportion Allocation Net Carrying Amount of Excess Amount Plant 850 85/109 136 714 Patent 240 24/109 39 201 1 090 175

As the patent has a fair value less costs to sell of $220, only $20 of the impairment loss can be allocated to it, so the plant must be reduced by a further $19, to $695.

At 31 December 2010, the plant and patent are recorded as follows:

Plant $1 500 Accumulated depreciation and impairment losses 1 155 [650 +136 +19 +350] 345

Patent $240 Accumulated impairment losses 20 220
QUESTION 9.7 (cont’d)

At 31 December 2010:

In relation to Jackson, there can be no