CGU Recoverable Amount and Assets
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Questions and Answers

What is the recoverable amount of the CGU on 31 December 2021?

  • R14 500 000 (correct)
  • R20 450 000
  • R12 000 000
  • R9 000 000

    • What is the useful life of the Factory buildings?

  • 6 years
  • 10 years
  • 5 years
  • 8 years (correct)

    • What is the purchase price of the Plant on 1 January 2019?

  • R11 225 000
  • R4 320 000
  • R9 000 000 (correct)
  • R12 000 000

    • What is the recoverable amount of the CGU on 31 December 2022?

    <p>R20 450 000</p> Signup and view all the answers

    What is the useful life of the Equipment?

    <p>7 years</p> Signup and view all the answers

    What is the purchase price of the Equipment on 1 January 2019?

    <p>R12 000 000</p> Signup and view all the answers

    What is the useful life of the Plant?

    <p>6 years</p> Signup and view all the answers

    What is the fair value of the Plant on 31 December 2019?

    <p>R11 225 000</p> Signup and view all the answers

    What is the purchase price of the machinery bought by XX Ltd?

    <p>R600 000</p> Signup and view all the answers

    What is the depreciation method used by XX Ltd for the machinery?

    <p>Straight line method</p> Signup and view all the answers

    What is the useful life of the machinery?

    <p>6 years</p> Signup and view all the answers

    What is the residual value of the machinery?

    <p>R0</p> Signup and view all the answers

    What is the measurement model used in QUESTION 1?

    <p>Cost model</p> Signup and view all the answers

    What is the fair value of the machinery on 31 December 2019 in QUESTION 2?

    <p>R700 000</p> Signup and view all the answers

    What is the recoverable amount of the machinery on 31 December 2020 in QUESTION 1?

    <p>R450 000</p> Signup and view all the answers

    What is the measurement model used in QUESTION 3?

    <p>Revaluation model</p> Signup and view all the answers

    What is the fair value of the machinery on 31 December 2020?

    <p>R700 000</p> Signup and view all the answers

    What is the depreciation method used in this scenario?

    <p>Straight line method</p> Signup and view all the answers

    What is the useful life of the machinery?

    <p>6 years</p> Signup and view all the answers

    What is the residual value of the machinery?

    <p>R0</p> Signup and view all the answers

    What is the revaluation model used?

    <p>Revaluation model using net replacement value</p> Signup and view all the answers

    What is the recoverable amount on 31 December 2022?

    <p>R250 000</p> Signup and view all the answers

    What happens to the revaluation surplus?

    <p>It is gradually transferred to retained earnings</p> Signup and view all the answers

    What is the fair value on 31 December 2023?

    <p>R900 000</p> Signup and view all the answers

    What is the fair value of the machinery on 31 December 2019?

    <p>R700 000</p> Signup and view all the answers

    What is the recoverable amount of the machinery on 31 December 2022?

    <p>R750 000</p> Signup and view all the answers

    What is the cost of the machinery bought on 1 January 2020?

    <p>R1 200 000</p> Signup and view all the answers

    What method is used to allocate depreciation?

    <p>Straight line method</p> Signup and view all the answers

    What is the fair value of the machinery on 31 December 2020?

    <p>R700 000</p> Signup and view all the answers

    What is the recoverable amount of the machinery on 31 December 2021?

    <p>R450 000</p> Signup and view all the answers

    How many years is the machinery depreciated over?

    <p>6 years</p> Signup and view all the answers

    What is the purpose of the revaluation surplus transfer?

    <p>To transfer gradually to retained earnings</p> Signup and view all the answers

    What is the purpose of determining the recoverable amount of a cash generating unit?

    <p>To determine if an asset is impaired</p> Signup and view all the answers

    What is the carrying amount of the CGU on 31 December 2021?

    <p>R20 000 000</p> Signup and view all the answers

    What happens to the carrying amount of an asset if its recoverable amount is higher than its carrying amount?

    <p>The carrying amount remains the same</p> Signup and view all the answers

    What is the purpose of determining the fair value of an asset?

    <p>To determine if an asset is impaired</p> Signup and view all the answers

    What is the implication of a decrease in demand for a company's products?

    <p>The CGU might be impaired</p> Signup and view all the answers

    What is the carrying amount of Goodwill on 31 December 2021?

    <p>R1 500 000</p> Signup and view all the answers

    What is the recoverable amount of the Equipment on 31 December 2021?

    <p>R9 300 000</p> Signup and view all the answers

    Why is it necessary to reassess the recoverable amount of a cash generating unit?

    <p>Because the market conditions have changed</p> Signup and view all the answers

    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.

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    Financial Accounting II Past Paper PDF - IAS 36 Impairment Loss

    Description

    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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