Impairment of assets
Rossi Ltd has a division that represents a separate cash generating unit. At 30 June 2012, the carrying amounts of the assets of the division, valued pursuant to the cost model, are as follows:
|
Assets: |
$ |
|
Plant and equipment |
400,000 |
|
Less: accumulated depreciation |
(90,000) |
|
Land |
300,000 |
|
Inventory |
30,000 |
|
Accounts receivable |
20,000 |
|
Patents and trademarks |
50,000 |
|
Goodwill |
90,000 |
|
Carrying amount of cash generating unit |
800,000 |
The receivables were regarded as collectable, and the inventory s fair value less costs to sell was equal to its carrying amount. The patents and trademarks have a fair value less costs to sell of $40,000, and the land has a fair value less costs to sell of $270,000.
The directors of Rossi estimate that, at 30 June 2012, the fair value less costs to sell of the division amounts to $650,000, while the value in use of the division is $660,000.
As a result, management increased the depreciation of the plant and equipment from $30,000 p.a. to $40,000 for the year ended 30 June 2013.
By 30 June 2013, the recoverable amount of the cash generating unit was calculated to be $53,000 greater than the carrying amount of the assets of the unit.
Required:
Determine how Rossi Ltd should account for the results of the impairment test at 30 June 2012 and 30 June 2013, and prepare any necessary journal entries. Show all workings.