The directors of Alfreton plc have decided that it is necessary to arrange for an impairment review of a subsidiary company, Barrington plc, at 30 September 2012. The business of Barrington plc comprise a single cash generating unit within the activities undertaken by the Alfreton group of companies.
The summarised draft statement of financial position of Barrington plc at the date of the impairment review, which took place on 30 September 2012, contained the following information:
Statement of financial position of Barrington plc at 30 September 2012
|
|
|
£million
|
|
Goodwill
|
100
|
|
Franchising arrangement
|
172
|
|
Special-purpose freehold property
|
195
|
|
Other tangible non-current assets
|
354
|
|
Inventories
|
107
|
|
Financial assets held for trading
|
18
|
|
Other assets
|
122
|
|
Total assets
|
1,068
|
|
|
|
|
Shareholders' equity
|
|
|
Share capital
|
600
|
|
Reserve arising from revaluation of special-purpose property in 2010
|
50
|
|
Retained profit
|
335
|
|
985
|
|
Liabilities
|
83
|
|
Total equity and liabilities
|
1,068
|
The following information is relevant to the impairment review:
1. The accounts department of Alfreton plc has estimated the net cash inflows from the future activities of Barrington plc to be as follows:
|
Year to 30 September
|
£million
|
|
2013
|
256
|
|
2014
|
340
|
|
2015
|
275
|
|
2016
|
104
|
2. Barrington plc could be sold on 30 September 2012 for £620 million.
3. The franchising arrangement has no reliably identifiable market value. However, it is expected to generate future cash flows at least equivalent to the carrying value in the above statement of financial position.
4. The fair value less costs to sell of the special-purpose freehold property is estimated to be £130 million.
5. Neither the inventories nor any of the 'other tangible non-current assets' has a net selling price that is greater than its carrying value.
6. The financial assets held for trading are estimated to be worth £43 million
7. 'Other assets' are stated at their recoverable amounts.
8. Liabilities are stated at the amounts which are expected to be paid.
Required:
(a)Compute the amount of the impairment of the Barrington plc cash generating unit arising from the impairment review.
(b)Allocate the impairment loss between the relevant components of the assets of Barrington plc.
(c)Prepare and present the journal entry required to incorporate the effect of the impairment review in the books of Barrington plc.
Notes:The discount rate appropriate to the activities of Barrington plc is 12%.
Assume that the forecast net cash inflows of Barrington arise at the end of each year to which they relate.
Assume you are making the calculations on 30 September 2012.
All calculations should be made to the nearest £0.1 million.