40 Questions
What is the recoverable amount of the CGU on 31 December 2021?
R14 500 000
What is the useful life of the Factory buildings?
8 years
What is the purchase price of the Plant on 1 January 2019?
R9 000 000
What is the recoverable amount of the CGU on 31 December 2022?
R20 450 000
What is the useful life of the Equipment?
7 years
What is the purchase price of the Equipment on 1 January 2019?
R12 000 000
What is the useful life of the Plant?
6 years
What is the fair value of the Plant on 31 December 2019?
R11 225 000
What is the purchase price of the machinery bought by XX Ltd?
R600 000
What is the depreciation method used by XX Ltd for the machinery?
Straight line method
What is the useful life of the machinery?
6 years
What is the residual value of the machinery?
R0
What is the measurement model used in QUESTION 1?
Cost model
What is the fair value of the machinery on 31 December 2019 in QUESTION 2?
R700 000
What is the recoverable amount of the machinery on 31 December 2020 in QUESTION 1?
R450 000
What is the measurement model used in QUESTION 3?
Revaluation model
What is the fair value of the machinery on 31 December 2020?
R700 000
What is the depreciation method used in this scenario?
Straight line method
What is the useful life of the machinery?
6 years
What is the residual value of the machinery?
R0
What is the revaluation model used?
Revaluation model using net replacement value
What is the recoverable amount on 31 December 2022?
R250 000
What happens to the revaluation surplus?
It is gradually transferred to retained earnings
What is the fair value on 31 December 2023?
R900 000
What is the fair value of the machinery on 31 December 2019?
R700 000
What is the recoverable amount of the machinery on 31 December 2022?
R750 000
What is the cost of the machinery bought on 1 January 2020?
R1 200 000
What method is used to allocate depreciation?
Straight line method
What is the fair value of the machinery on 31 December 2020?
R700 000
What is the recoverable amount of the machinery on 31 December 2021?
R450 000
How many years is the machinery depreciated over?
6 years
What is the purpose of the revaluation surplus transfer?
To transfer gradually to retained earnings
What is the purpose of determining the recoverable amount of a cash generating unit?
To determine if an asset is impaired
What is the carrying amount of the CGU on 31 December 2021?
R20 000 000
What happens to the carrying amount of an asset if its recoverable amount is higher than its carrying amount?
The carrying amount remains the same
What is the purpose of determining the fair value of an asset?
To determine if an asset is impaired
What is the implication of a decrease in demand for a company's products?
The CGU might be impaired
What is the carrying amount of Goodwill on 31 December 2021?
R1 500 000
What is the recoverable amount of the Equipment on 31 December 2021?
R9 300 000
Why is it necessary to reassess the recoverable amount of a cash generating unit?
Because the market conditions have changed
Study Notes
Impairment of Cash Generating Unit
- ZL Ltd is in the process of manufacturing roof tiles and has discovered that their cash generating unit might be impaired due to a decrease in demand.
- The recoverable amount of the CGU is R14 500 000.
- The CGU consists of:
- Goodwill (purchased) with a carrying amount of R1 500 000
- Equipment with a remaining useful life of 8 years and a carrying amount of R8 000 000
- Plant with a remaining useful life of 4 years and a carrying amount of R7 500 000
- Factory buildings with a remaining useful life of 5 years and a carrying amount of R2 700 000
- The carrying amount of the CGU is R20 000 000 and the recoverable amount is R14 500 000.
Equipment and Plant Measurement
- Equipment is measured using the cost model.
- Plant is measured using the revaluation model, using net replacement value.
- Equipment was purchased on 1 January 2019 for R12 000 000 with an estimated useful life of 10 years.
- Plant was purchased on 1 January 2019 for R9 000 000 with an estimated useful life of 6 years to a nil residual value.
Factory Buildings
- Factory buildings were bought on 1 January 2019 for R4 320 000 with an estimated useful life of 8 years to a nil residual value.
- Factory buildings are measured using the cost model.
Impairment Reversal
- The market might have picked up again in 2022.
- The recoverable amount should be R20 450 000 on 31 December 2022.
XX Ltd's Machinery
- XX Ltd bought machinery on 1 January 2019 for R600 000, depreciated using the straight-line method over 6 years to a nil residual value.
- The machinery is measured using the cost model, revaluation model (net replacement value), and revaluation model (gross replacement value).
- The fair value of the machinery was determined as R700 000 on 31 December 2019.
- The recoverable amount was R450 000 on 31 December 2020, R250 000 on 31 December 2021, and R750 000 on 31 December 2022.
General Journals
- Required to prepare the general journals for XX Ltd from the date of purchase of the machinery to 31 December 2021 and 31 December 2022.
- Required to prepare the general journals for ZL Ltd for the year ended on 31 December 2021 and 31 December 2022.
This quiz is about the recoverable amount of a Cash Generating Unit (CGU) and its composition of assets, including equipment and plant. It requires calculation of recoverable amounts and useful life of assets.
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