Issues in Financial Reporting and Analysis Assignment
Q1. Impairment Loss and Cash Generating Unit
RA Ltd calculates an impairment loss of $4,800,000 that must be applied to one of its cash generating units. The carrying amounts of the assets that comprise the cash-generating unit are as follows:
$'000
Goodwill 4,000
Building 2,000
Plant 1,000
Office Equipment 3,000
$10,000
RA Ltd determines that the net selling price of the building is $1 800 000 and its value in use is $1 900 000.
Determine the carrying amount of each of these assets in accordance with AASB 136 Impairment of Assets. Show all workings.
Q2. Accounting for Intangible Assets
Part A: Morris Limited is a company involved in the research and development of a new mechanical toy soldier. The company incurs the following costs:
a. $150,000 on understanding the current toy market;
b. $250,000 on determining whether there still exists demand for mechanical toys in the current computer-based toy environment;
c. $500,000 in designing and testing a prototype;
d. $500,000 in developing and testing the product.
Part B: Morris Limited has an intangible asset on its books which was initially recorded on 1 July 2014 at $300,000. The asset has a finite life (10 years). At 30 June 2016, the asset was assessed as having a recoverable amount of $200,000
Required:
i. Determine how each of the four incurred costs outlined in Part A (above) would be treated for accounting purposes
ii. Identify if the accounting treatment of any four incurred costs outlined in Part A (above) is conditional, and explain those conditions
iii. Show the journal entries to account for the intangible asset in Part B (above): (a) at 30 June 2015 and (b) at 30 June 2016.