IAS-36 IMPAIRMENT LOSS ICAP PAST PAPERS WITH SOLUTION

Question 1 (D-19)
Krona Limited (KL) produces various nutrition products through its three production facilities
located at Karachi, Lahore and Peshawar. Each facility is considered as a separate cash-generating
unit (CGU).
In May 2019, several contamination cases of KL's products were reported on social media as well as
on TV channels. The adverse publicity badly affected all the products and consequently their sales
were reduced significantly. Therefore, KL conducted impairment test of all CGUs as on 30 June
2019, though KL does not have any intention to sell any CGU in near future.

Following information was made available on 30 June 2019: Assets of CGUs:

Particulars Karachi Lahore Peshawar

------------Rs In Millions------
Carrying Amount before impairment 160 100 125
Value in Use 155 115 164
Fair Value less CTS 152 110 169
Remaining useful life
Average in years 10 8 6

Corporate Assets:

Particulars Carrying amount before Remaining average

impairment useful life
Head office Assets 84 15
Product Development Centre 26 5

The operations are conducted from the head office. Product development centre supports Karachi
and Lahore facilities only.

Required:
Compute carrying amounts of each CGU and corporate asset after incorporating impairment losses
under the following independent situations:

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Question 2 (D-17)
The following details relate to a cash generating unit (CGU) of Khyber Ltd. (KL) as at 30 June 2017:

Carrying value Fair value less cost to sell

---------- Rs. in million ----------
Building (revaluation model)* 22 21.7
Machinery (cost model) 15 16
Equipment (cost model) 19 No measureable
License (cost model) 20 18
Investment property (fair value model) 22 22
Investment property (cost model) 8 Not measureable
Goodwill 3 Not measureable
Inventory at NRV 8 8

*Balance of surplus on revaluation of building as on 30 June 2017 amounted to Rs. 3 million.

Value in use and fair value less cost to sell of the CGU at 30 June 2017 were Rs. 100 million and Rs.
95 million respectively.

Required:
Compute the amount of impairment and allocate it to individual assets. Also calculate the amount to be
charged to profit or loss account for the year ended 30 June 2017. There has been a significant decline in
budgeted net cash flows of the CGU.

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Question 3 (D-16)
On 1 July 2013, GYO Movers Limited (GML) acquired a business engaged in providing
transportation service and recognized goodwill of Rs. 10 million. The business operates three
different bus routes namely Green, Yellow and Orange. The business had been running
exceptionally well. However, during the year ended 30 June 2016 entrance of new competitors has
affected its performance.
GML considers each route as a separate Cash-Generating Unit (CGU). As on 30 June 2016, following
information is available in respect of each CGU:

Green Yellow Orange

Number of buses* 80 50 40
Expected remaining useful life (in 20 15 10
years)
-------------------- Rs. in million --------------------
Carrying amount of buses 225 150 95
Other assets - carrying value 400 350 100
- fair value Not Available
Fair values less cost to sell of the CGU 500 450 250
Expected net cash flows per annum 70 60 50

*Assume that all buses are of same make and model.

Carrying amount of corporate assets used interchangeably by all segments are as follows:

Particulars Carrying amount Fair value

---------- Rs. in million ----------
Head office building 100 Not available
Computer network 55 46
Equipment 45 60

For impairment testing of each CGU, following quotations were obtained from three different
showrooms located in different cities.

Particulars Showroom-1 Showroom-2 Showroom-3

---------- Rs. in million ----------
Average sale price for each bus 2.52 2.62 2.50
Estimated transaction cost for disposal of 0.05 0.20 0.10
each bus

Pre-tax discount rate of GML is 12%.

Required:
Prepare relevant extracts from the statement of financial position as at 30 June 2016 in accordance with
International Financial Reporting Standards.

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Question 4 (D-15)
Beta Foods Limited (BFL) is in process of finalizing its consolidated financial statements for the year
ended 30 June 2015. Following information pertains to BFL’s intangible assets.

(i) Value of intangible assets as at 30 June 2013:

Goodwill Patents
Rs. in million
Cost 1,500 400
Accumulated amortization / impairment 300 160

(ii) On 1 July 2013, BFL acquired the entire shareholdings of Gamma Enterprises (GE) for Rs. 5,400
million. The value of patents, development expenditure and other net assets of GE on the date of
acquisition was Rs. 2,100 million, Rs. 48 million and Rs. 1,430 million respectively.
The break-up of development expenditure was as follows:

Products Rs. in million

A – 214 25
B – 917 23
Total 48

(iii) Research and development expenditure during the year ended 30 June 2014 and 2015 was as
follows:

Year Product Name Research Development

Rs. in million
2014 A – 214* --- 08
B – 917 10 45
2015 B – 917 --- 50
*because of certain reasons the management had decided to abandon this project in May 2014.

(iv) Trial production of B-917 commenced in March 2015. Net cost of trial production up to 30 June
2015 amounted to Rs. 22 million.
(v) Patents are amortized over their remaining useful life of 10 years on straight line method.
(vi) Recoverable amounts of assets having indefinite life, determined as a result of impairment
testing, were as follows:
2015 2014
Rs. in million
Goodwill 2,800 2,550
Product B – 917 160 65

Required:
Prepare a note on intangible assets, for inclusion in BFL’s consolidated financial statements for the year
ended 30 June 2015 in accordance with the requirements of International Financial Reporting Standards.

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Question 5 (D-12)
On 1 July 2011, PL acquired 20% shares of Goose Limited (GL), a listed company, when GL’s
retained earnings stood at Rs. 250 million and the fair value of its net assets was Rs. 350 million.
The purchase consideration was two million ordinary shares of PL whose market value on the date
of purchase was Rs. 33 per share. PL is in a position to exercise significant influence in finalizing the
financial and operational policies of GL.
The summarized statement of financial position of GL at 30 June 2012 was as follows:

Rs. in million
Share capital (Rs. 10 each) 100
Retained earnings 280
380

Net assets 380

Recoverable amount of GL’s net assets at 30 June 2012 was Rs. 370 million.

Question 6 (S-11)
On April 1, 2006 Kahkashan Limited had acquired a plant at a cost of Rs. 30 million. The useful life of the
plant was estimated at 15 years and it is being depreciated under the straight-line method. On October
1, 2010 the plant suffered physical damage but is still working. A valuation was carried out to determine
the impairment loss. The following information is available from the valuer’s report received on April 5,
2011:

Value in use Rs. 16 million

Selling price, net of costs to sell Rs. 12 million
Estimated remaining useful life as of October 1, 2010 5 years

Depreciation for the year ended March 31, 2011 has been accounted for without considering the
impact of the valuer’s report.

Required:
Prepare a relevant extract of statement of comprehensive income for the year ended March 31, 2011 in
accordance with International Financial Reporting Standards.

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Question 7 (S-09)
On January 1, 2008, Misbah Holding Limited, dealing in textile goods, acquired 90% ownership
interest in Salman Limited (SL), a ginning company, against cash payment of Rs. 450 million. At that
date, SL’s net identifiable assets had a book value of Rs. 350 million and fair value of Rs. 400 million.

It is the policy of the company to measure the non-controlling interest at their proportionate share
of SL’s net identifiable assets. During the year ended December 31, 2008, SL incurred a net loss of
Rs. 150 million. The impairment testing exercise carried out at the end of the year, by a firm of
consultants, showed that the recoverable amount of SL’s business is Rs. 200 million. However, the
Board of Directors is inclined to take a second opinion as they estimate that the recoverable amount
is Rs. 390 million.

Required:

Based on each of the two valuations, compute the amounts to be reported in the consolidated
statement of financial position as of December 31, 2008 in respect of:
1. Goodwill;
2. Net identifiable assets, and
3. Non-controlling interest

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IAS-36 IMPAIRMENT LOSS ICAP PAST PAPERS WITH SOLUTION

Solution 1

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In (a)(ii) above, due to non-availability of reasonable basis for allocation of corporate assets,
impairment has been assessed on overall basis. This results in lesser loss in this situation.
Peshawar CGU is not impaired and its recoverable amount is more that the carrying value by Rs. 24
million. So on overall impairment assessment, the excess of Rs. 24 million resulted in lesser
impairment loss.

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IAS-36 IMPAIRMENT LOSS ICAP PAST PAPERS WITH SOLUTION

Solution 2

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IAS-36 IMPAIRMENT LOSS ICAP PAST PAPERS WITH SOLUTION

Solution 3

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Solution 4

Solution 5
Rs in Million
Consideration 66
FV of NA acquired 70
Bargain Purchase Gain 4
Change in NA 6
Consideration 66
Net Assets 76
74
Recoverable Amount
Imp loss (2)

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IAS-36 IMPAIRMENT LOSS ICAP PAST PAPERS WITH SOLUTION

Solution 6

Solution 7

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