SL CHAPTER 95 IMPAIRMEN T OF As Cash 8enerating aes TECHNICAL KNOWLEDGE pawn To understand the Concept of a cash generating unit. To measure the impairment of a cash generating unit. To allocate the impairment loss across the assets of a cash generating unit. To know the impairment of a cash generating unit with goodwill. 859 1 wip pteCash generating unit (CGU) amollest identifiable group of Aca genera i er contig Ue that are fat ath inlows from continuing seat ee rh tafe faa oot rn prac, v cash generating unit may be a depa de ae ora tas or which the OuPU Of prod yt produc ya materials labor and overhead can be idenuge a basic rule, the recoverable amount of se shat Skonine pr the onset individually. & However ifit is not possible to estimate the recoverable amoung, of the individual easet, an entity shall determine th ‘eoversble amount ofthe cash generating unit f0 which the eet belongs. ‘The cash generating unit must be the smallest aggrogat of assets fr which cash flows can be identified and which are independent of cashflows from other assets oF group of aseta ‘An agaregation that is"too high” is prohibited, For example an entity is overall quite profitable and genera pantive cashflows. Senernas However, there are some departments or product lines that are significantly unprofitable and cash drain, 4 aggrogation is done at the “entity level", there would be no impairment to be recognized. Qh the other hand if he impairment testing is done atthe “department or product line level", then some ") ‘ see would bs writen down to reomerable amouse ‘The "oh geterating asst? would continue t be aco Be ! continue tobe axounted 860 Mustration 1 yan ei fn nity hat on tt eat erating wit ‘The ance of the cath geerating unt at caring amount Ate: paiet 2,400,000 Lad ent 1500.00 i 500,000 Inventory 1000 Carrying amount of GU 000,000 Most often, the recoverable amount of a cash generating unit ‘sequal © the value in use enue te unit hot fo Be diopoued of ‘The entity calculated the value in use of the cash generating ‘unit to be Pa, 500,000. “ Carrying amount of GU 6,000,000 Valueinuse 500,000, ‘Impairment low PAS 96, paragraph 104 provides that when an impairment lows in recognized for a cash generating unit, this lose shall be tlocated to the asets ofthe unit in the fllowing order: ‘a. First, tothe goodwill if any b. Thea, toallother noncash assets ofthe unit prorat based 861 paweees nye wilh‘Allocation of impairment loss good will the impairment lose in alocigy manne Since spe ted on caine amount careringamovst Fraction Lay . 2,400,000 24/60 Paioe one NES tana Les poonoo HED ha er ‘So. Sioa _S7e Ee00.000 “Taso Journal entry to record the impairment loss tmparnestoe 1.500.000 i erection bing sooo im ‘some et aad erection einen a= ime A Mlustration 2 ‘Am entity has determined that its fine china division is « ‘cach generating unit. The entity calculated the value in use ‘ofthe division to be P8,000,000. ‘The ansets ofthe cash generating unit at carrying amo are o9 Gllowe: sroerane wat cee 5,000,000 —— 3,000,000 000,000 SERENA 10,000,000 Ths entity has ala determined tha the far valueless (of disposal of the building is P 4,500,000, as Carrying amount of GU Vale ine Iapesrmest lose location bated on io ing amount puidioe /10s26m9% Bord 1200.00 Fammon @/ioanegie teo.s00 ‘total impairment lors " £00,000 om.c02 imere tht ferent sto ioe bling ser than the frre aldng would be Pa.000,000 whic * ‘value less cost of disposal of P4,600,000. oragraph 105 of PAS 36 provides th Porarah 1 P88 35 phate caring omount Gat of caponal, value inace ego ewe ffir vole lest ‘Tre amount of impairment ow th would ohare have been allocate othe oe sal bales erate ne eterofe!t ee enantl taletd perio the ether ane ‘Accordingly, only P50? O00 osx allacated to the building and the balance of P500.00 is reallocated tothe equipment and inventory prorata, Balding Euipment Inventory ‘Allcatedlose 1.000000 600,000 400,000 Now (80,00) ‘37° x 500,000 00,000 21x 600,000 = 200,000 Imapairmentlowt {600,000 Journal entry to record the impairment lo Iapairmentlos 12,000,000 "Rorumulated dprecaon~buldng ‘Accumulated depen equips avertory ter tn ijn erg amet the gt Aes i iat lela conto opel 388 383 17 71 b#/l wilcash generating unit with goodwill set not greta indent oh, Geil ee cl aren era FET nti oat emiatb dcined neers retention that endl Aes amount i determined for the cay Soerrdng sitio which goodwill blogs Determination of impairment PAS 96, peragraph $0, provides that a cash generating u fo whe goodwill has been allocated shall be tested for Impairment at leagt annually by comparing the carrying mount of the anit, including the goodwill, with the ‘ecoverable amount. 1. Ifthe recoverable amount ofthe unit exceeds the carrying ‘mount ofthe unit, the unit and the goodwill allocated ws ‘hat unit sball be regarded as not impaired. ifthe carrying amount ofthe unit exceeds the recoverable amount of the unit, the entity must recognize an impairment los. The asseta of «cath gnerating unit at carrying amount a year-end are as follows: * a ropery. plant and equipsent 3,000,000 Geotwal 2,000,000, 3,000,000 mad £$,000,000 ‘An annual impairment review is required as the generating unit contains goodwill. sauized ae the on The mont recent review assesses the value cash generating uit ta bo Pa,500,000," "Mt ofthe Carrying amount of COU Valo in oe 6,000,000 ny owe 4:500,000 3,500,000 864 ‘Allocation of impairment tos, rene owe icable to goed 1,500,000, ee incaraen 4,000,000 oe . 100,000 she €x08e impurment ni ac = fesets proratn based on earmnng net the other noneash, Carrying simount’ Fraction Lous propertyplantandequpment 000000 315 900,000 Pasent Boe 2/5 200,000 300,000 Journal entry to recognize the impairment loss Impairment lone 1.500.000 Geode 1,000,000 ‘cumulated depression 00,000 Patent Be Another illustration ‘An entity hes a cath generating unit that has been experiencing fignificant losses in prot years. There is objective indication that such cash generating unit is impaired. ‘At current year-end, the cash generating unit is tested for Apairment withthe follwing sects and liabilities: 1.000.000 cash ; cares 800.000 3.00 09, bee + 200.000 Plant and equipment 300.000 Pail doprcmice 3.9400 zune pale 2300 900 on seo. cette Ie in reliably determined that te value in use f the cash generating unit is PAO00000 mp tw pawn? ~ 1) ww)Allocation of impairment loss ‘The remaining impairment loos of P3,000,000 is allocated to the other noncash assets based on carrying amount: Carryingamount Fraction Loss Accuntarecivatie «2.000.000 20/100 600,000 loves 3.000.000 80100 500,000 Land 1.600.000 18/100 480.000, Platandequipment~met 3,500,000 38/100 1.050.000 10,000,000, 3,006,000 Journal entry to recognize the impairment loss epairment oe 4.000.000 000, Aeros rewivabie “eae frend 900,000 450,000 1,080,000, Reversal of impairment loss on goodwill PAS 36, parog, raph 124, explicitly provides that an inzairment las recognized for ‘shall not be reversed Carrying amount of cGy ‘Observe that the Liabilities ofthe nit are ignored in determining ie caercauh generating wait PAS 36, Paragraph 76, provides that the carrying amount of a cash generating uni includes the nace kamount of ‘only those assets thatcanbe atisbuiod azeety or allocated ‘on a reasonable and consistent bass to the cash generating unit, and can generate the future cath inflows used in. determining the value in use of the cash generating unit. Paragraph 76 further provides that the carrying amount of the cash generating unit does not include the carrying amount of any recognized liability, unless the recoverable amount of the cath generating unit cannot be determined. ‘without consideration ofthis lebilty ‘The reason is stated in Paragraph 43 of PAS 36 which mandates that to avoid dcuble outing, etimates of future fash flows do not include cash outflows that relate £0 ‘obligations that have been recognized! as liabilities by the ‘cash generating unit, suchas payables end provisions. Corporate assets Corporate assets are assets cther than goodwill that contribute ta the future cath owe of both the cash generating unit under ‘review and other cash generating units. congo tt ie ote ar go isos stets sch reer eB, eguipnst ot resach ent ome ch ‘Kasentially, corporate assets are assets that do rot inflows independently from other assets, ofan indivi corporate set ne a ant min Carpet tg rit a arc es OS rsequac fer isan nation tha cera ‘a conseguir iereverble amount of the ca ay be inperich the corporate asset belongs 6 emrating wa mack eae #0 ‘cash generating unit. 867 piven wil hw!Mlustration entity has two cash generating units, OGU One and CGy Aasnte Ato gout llecated tothe can generat Th. Thee og amount fhe cash generating unite ae 1 10,000,000 aU tre {S.e.000 ‘The entity has an olfce building that has not been included in the carrying amounta ofthe cash generating units and can be allocted to the unite on the bass of carrying amount. The ‘ofboe building has a carrying amount of PS,000,000. ‘The entity calculated the value in use of the cash generating units as follows: COU One 3,000,000 (GU Two 18,000,000 ‘The carrying amounte of the units including an allocated portion, ‘of the office building are determined as follows: cauOne COU Two Carrying amount 10,000,000 16,000,000 Offic balding: 10/28 x 5,000,000 2,000,000 15/25 x 5,000,000, 8,000,000 ‘Tota carrying amount Valen ue Impsirmeat low Cerriagamount Fraction Lone Grier sents 1,000,000 10/12 2500, OBiecting —_2,000,009 2/12 sono. 22.000,000 8,000,000, ess QUESTIONS 1. ia he en pt et 4. Balan the aleason eg EI cree haps to cross the s.Bxplsin inpirment of «each goodwill 4, What are corporate ascts? nerating unit with ‘5. Explain impairment of corporate assets paws ad wih blPROBLEMS Problem 36-1 (IFRS) ree aoe ee Bene Tine Gentian eee eae emcees epgngemens menue he als ere Coe ee eee tars alaion a ae 2.00, ee 78000 Tomar oeL000 aaa Soo. Required 1. Determine the amount of impairme 2 Allocat the impairment loss to the assets of the cash generating unit 3. Prepare journal entry to record the impairment loss, Problem 36-2 (IFRS) Palpable Company has determined that the furniture division incase generating un Thwsnity cleuated the valor a te ofthe non fo be P11 008000. : ‘The entity bau also determined that the fair value less cost of disposal of the building ix P6,500,000. The carrying famounta ofthe aasets are. sind Being +,000,000 Equipment $000,000 Inventocy 4,000,000 Required: 1. Determine the impairment loss. 2 Alate the inpltoen foe othe ane of theca ‘generating unit. te of the 2 Bip are Journal entry to record the impairment loss. 870 ‘Problem 35-8 (a4) boen experiencing signrcs Seteating unite. One OGU has soe eemntteeant Lae npn years Th pang un Pa ger a paren be the ch ees sea ofthe OGU at carrying amount at Cash ‘Accounts reervabe 216,000,000 20,000,000 ventory Oe Property, plant and equprect net 50,000,000 Goodwill 8,000,000 Ie io reliably determined that the value in use of the eash generating unit atthe curest year-end se P100, 000,000. ‘Required: A. Determine the impairment kos ofthe cash generating unit. 2 Prepare journal eatry o reord the impairment loos Problem 36-4 (IFRS) Visayas Company has « number of cash generating unit including one whove major operation w the manufacture of fine chi ‘The assets of the fine china division at carrying amount at the current yearend are 5.000 000 Machinery $000,000 ‘Acrounta receivable ae Pesent 1,000,000 Te ume at ah Eh of the cash generating unit is P7.200, Required: of the fine china di aves hina division Determine a ey to record the impairment fone. an pavers mom wit biProblem 35-5 (IFRS) One of the cash generating unite of Severe Company is the production of liquor. ‘ks yearend te entity belived thatthe assets ofthe cash A zearng anit are impaired based on an anelysig of Economie Indicators. ‘The assets and liabilities of the cash generating unit at ‘carrying amount at year-end are: Cauh Account receivable Allowance for doubtful accounts Inve Property. plant and equipment Accumulated deprecation Gedwil ‘Account payable Loane payable ‘The entity determined that the value in use of the cash generating unit is P30, 000,000, Te account erate ae considered clei, exept ‘considered doubtful. — Required: 41, Determine the carrying amount ofthe cash generating unit. 2. Determine he impairment os ifany, ofthe sh generating 4. Prepare journal entry to record the impairment loss. 7a Problem 35-6 (RS) yearend: B Siete flow SCY bs a cash generating unit ‘arying mous — Stent cqupee tnd equipment Eesti pita aes Coote The aceounts recital are regarded as collectible andthe inventory hat far vale ca apne whic neal, he caring amount Te ha value es tof dispotal of P760,000. ecce Nae fae valu Ie [At yearend, the entity determined the value in use of the unit at P4.050,000. = ks Required: Prepare journal entry to record the impairment loss. Problem 35-7 (IFRS) ‘Unison Company has various cash generating units. One eash generating unit has the following carrying amount of assets at year-end: 600,000 inept 88 Land 2'500,000 Plantand equipment 9,000,000 ‘ocumlted deprecation 1/300.000 Geodwi 1000000, lug in use of the cash ‘The management determined the val generating tnt at PB 50,00. “The fair value lees costof depos for the inventory was greater than the carrying emount. Required: Prepare journal etry orengize the impairment ove 813 ae wih hlProblem 96-8 (AICPA Adapted) [At the beginning of current year, Gold Company acquis Mother enuty in a business combination. — ‘As a result of the combination, the following amounts of ‘oodwill were recorded for each of the three reporting units of the acquiree: Retailing 300,000, Service £200,000 Financing 400,000 Near the end ofcurent oar, ew malo competitor nt Dertyeaset and the ent was concerned tha tis Sigh ene’ sanibant deine Inthe vale of goog. Accordingly, the entity computed the implied value of the peal fer the three major reporting unite at year-end ag Retailing Sern Rome Financing 600,000 1. What is the impairment of goodwi What i che impairment of goodwill ateibatable to 260,000 ‘6. 300,000 = 60,000 4a 0 2 What is the impairment of goodwill attributable t » = 200,000 100,000 300,000 a 0 3. What io the im il Hibat is the impairment of goodwill attributable to = $00,000 600,000 © 200,000 4 ° an Problem 35-9 (Ay pivine Com 2 i faprmen of wea Wk ering wis Segment carrying moan ™ cursing sat de gen 000 Sed Paral Sexes mated far auc 2.5000 than yoodm toe neraowo 1 tll emount : Wha etal ams td be repre spin ose 200.000 & Soo & Sononn 5 eee Problem 35-i0 (IFRS) ‘Zephyr Company provided the following calculation about an impairment lose recognized on December 31, 2019. onde Ocher sets ee sreoemo 2008090 Sect gemhoee, aja caring ee : a There has been a favorable change in the estimate of the There ae en Sgn nee mpaet reoworable mo¥e vera amount w now PH 000.00 on Seeebee ar tat ‘The carrying amount of the net assets of would have been aunt of ee a Sn pcm 0 0 on Deas Bp ois aw Serene ‘at 20% of reducing : ‘What amount should be recognize impairment for 2020? as gain on reversal of 815