Movies Ltd has two separate cash generating units, ‘Cinema' and ‘DVD Sales'. At 30 June 2016, the carrying amounts of the assets of the units, valued pursuant to the cost model, are as follows:
Cinema DVD Sales
Assets: $ $
Cash 5,000 12,000
Inventory 4,000 85,000
Furniture and fittings 250,000 35,000
Less: accumulated depreciation (45,000) (10,000)
Electrical equipment 165,000 25,000
Less: accumulated depreciation (55,000) (15,000)
Land and buildings 650,000 185,000
Less: Accumulated depreciation (buildings) (25,000) (6,000)
Licence 25,000 Goodwill 45,000 15,000
Carrying amount of cash generating unit 1,019,000 326,000
The inventory is recorded at the lower of cost and net realisable value. The licence has a fair value less costs to sell of $24,000. The land and buildings of ‘Cinema' have a fair value less costs to sell of $550,000, and the land and buildings of ‘DVD Sales' have a fair value less costs to sell of $175,000.
On 30 June 2016, the directors of Movies Ltd estimate that the fair value less cost to sell for ‘Cinema' and ‘DVD Sales' amount to $780,000 and $318,000 respectively. The value in use of ‘Cinema' and ‘DVD Sales' are estimated at $900,000 and $290,000 respectively.
Required:
Determine the impairment loss (if any) to be recognised by Movies Ltd for each of its cash generating units as at 30 June 2016, and determine how the impairment loss (if any) is to be allocated. Prepare the journal entries to account for the impairment loss/losses (if any). Show all workings and provide references to the relevant accounting standard to support your answer.