Impairment, two Cash-Generating Units
Aloe Ltd has two divisions, Angelica and Ambrosia. Each of these is regarded as a separate cash-generating unit.
At 31 December 2011, the carrying amount of the assets of the two divisions were:
|
|
Angelica
|
Ambrosia
|
|
|
$
|
$
|
|
Plant
|
1,500
|
1,200
|
|
Accumulated depreciation
|
(650)
|
(375)
|
|
Patent
|
240
|
-
|
|
Inventory
|
54
|
75
|
|
Receivables
|
75
|
82
|
|
Goodwill
|
25
|
20
|
The receivables were regarded as collectable, and the inventory's fair value less costs to sell was equal to its carrying amount. The patent had a fair value less costs to sell of $220. The plant at Angelica was depreciated at $300 p.a., and that at Ambrosia was depreciated at $250 p.a.
Aloe Ltd undertook impairment testing at 31 December 2011, and determined the value in use of the two divisions to be:
- Angelica $1,044
- Ambrosia $990
As a result, management increased the depreciation of the Angelica plant from $300 to $350 p.a. for the year 2012.
By 31 December 2012, the performance in both divisions had improved, and the carrying amounts of the assets of both divisions and their recoverable amounts were as follows:
|
|
Angelica
|
Ambrosia
|
|
Carrying amount
|
$1,322
|
$1,433
|
|
Recoverable amount
|
$1,502
|
$1,520
|
Required:
Determine how Aloe Ltd should account for the results of the impairment tests at both 31 December 2011 and 31 December 2012, and prepare any necessary journal entries. Show all workings.
(Source: Picker, R., Leo, K., Alfredson, K., Radford, J., Pacter, P., & Wise, V. (2009). Australian accounting standards. (2nd edition) (pp. 533-534). Brisbane: John Wiley & Sons.)