Week 11: Tutorial questions

Question 1
Management of Jaycee Ltd were concerned that the market for machinery, that they own and use in
their business, had suffered a downfall in prices during 2022. It was determined that the company’s
machinery would be tested for impairment on 30 June 2022.

Jaycee Ltd records all machinery using the cost model. The following information relates to the three
machines held by Jaycee Ltd as at 30 June 2022:

Machine Carrying amount Fair Value Cost of disposal Value in use

$ $ $ $
A 400 000 420 000 12 000 440 000
B 200 000 180 000 4 000 192 000
C 320 000 340 000 8 000 328 000
Required:
1. Determine the recoverable amount for each of the three items of machinery.
2. Determine if any of the machines is impaired and record any necessary journal entries
to account for impairment losses.

Question 2
Racoon Ltd reported the following statement of financial position at 30 June 2022:
Assets $
Cash 18 000
Accounts receivable 10 000
Inventory 22 000
Plant 80 000
Accumulated depreciation – plant (24 000)
Equipment 62 000
Accumulated depreciation – equipment (34 000)
Land 180 000
Patent 95 000
Goodwill 15 000
Liabilities & equity
Accounts payable 45 000
Other payables 56 000
Mortgage 100 000
Share capital 200 000
Retained earnings 23 000
Racoon Ltd treats the entire entity as one cash generating unit, and must test annually for
impairment as they have intangible assets with an indefinite life.

On 30 June 2022, the recoverable amount of the entity was calculated as $350 000. On this
date land was determined to have a fair value less costs of disposal of $158 000.

Required:
Prepare the journal entry for any impairment loss at 30 June 2022. Show all calculations.

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Question 3
Basil Ltd has two divisions, each regarded as a separate CGU. The carrying amounts of the
net assets within each division at 30 June 2022 are as follows:

Division 1 Division 2
Cash 5 000 8 000
Accounts receivable 20 000 8 000
Inventories 30 000 40 000
Plant 110 000 100 000
Accumulated depreciation - plant (40 000) (60 000)
Vehicles 40 000 30 000
Accumulated depreciation - vehicles (15 000) (10 000)
Buildings 320 000 300 000
Accumulated depreciation – buildings (120 000) (120 000)
Land 80 000 50 000
Current liabilities 20 000 40 000
Borrowings 120 000 66 000
Basil Ltd also has the following intangible assets: goodwill $26 000 and software $48 000.
These intangible assets are allocated to the divisions equally.
Basil Ltd determined that the recoverable amount of Division 1 as $380 000 and of Division
2 as $373 000
Required: Prepare the journal entries to record any impairment loss for each division at 30
June 2022. Show all calculations.

Question 4
“The COVID-19 pandemic has significantly impacted the radio advertising market in the year
to 30 June 2021, with a slower recovery evident in this market compared to other markets
in which the Group operates. Given the uncertain timing and extent of recovery in this
market, as well as the ongoing disruption from digital mediums, management has adjusted
longer-term growth assumptions of this CGU. As a result, goodwill and other intangible
assets have been impaired” (Nine Entertainment, Annual Report 2021, p. 105)
https://www.nineforbrands.com.au/wp-content/uploads/2021/09/Nine-2021-Annual-
Report-web-final.pdf
Required:
1. According to AASB 136 Impairment of Assets briefly discuss:
a) When assets must be tested for impairment
b) Why some assets cannot be tested individually
c) Examples of indicators that assets might be impaired
2. Using the annual report 2021 of Nine Entertainment, identify and briefly discuss if they
have disclosed:
a) Indicators of, or reasons for, their assets requiring impairment testing
b) Assets tested for impairment individually
c) Assets tested as part of CGUs
d) Impairment losses for 2021. (You must identify what assets were written down (ie
allocated losses)
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