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Chapter
28 /
Impairment ofAssets (lAS 36)
309
Solution
The taxi service, bus company, and travel agency will each constitute cash-generating units. However,
because the entity is required to operate on all 10 rail routes, the lowest level of cash flows that are inde–
pendent of cash flows from other groups of assets is the cash flows generated by the 10 routes together.
lOA
Goodwill that has been acquired in a business combi natio n sho uld be allocated to cash–
ge ne rating units. No rmally internal management records will be used fo r the allocatio n of goodwill .
The reported segme nts of the entity will be the minimum size of cash-generating units to which
goodw ill will be all ocated.
Case Study 7
Facts
An entity operates an oil platform in the sea. The entity has provided the amount of $10 million for the
financial costs of the restoration of the seabed, which is the present value of such costs. The entity has
received an offer to buy the oil platform for $16 million, and the disposal costs would be $2 million. The
value-in-use of the oil platform is approximately $24 million before the restoration costs. The carrying
value of the oil platform is $20 million.
Required
Is the value of the oil platform impaired?
Solution
The fair value less cost to sell of the oil platform is $14 million, being $16 million offered minus the dis–
posal costs. The value-in-use of the platform will be $24 million minus $ 10 million, which is $14
million. The carrying amount of the platform is $20 million minus $ 10 million, which is $10 million.
Therefore, the recoverable amount of the cash-generating unit exceeds its carrying amount, and it is not
impaired.
10.5
If an entity disposes of an operatio n with in the cash-generating unit, the goodw ill associated
with that operation will be included in the ca rry ing amount of the ope ration whe n calcul ating the
gain or loss on disposal. Th e amo unt incl uded in the gain or loss on disposal will be based on the
proportion of the cash-generating unit that is disposed of.
Practical Insight
Fr aport AG, a German entity , di scl oses in its 2003 acco unts that ev ide nce of its internal re–
porting suggested that the eco nomic performance of an asset was go ing to be wo rse than ex–
pected. A review of the assets revealed that earni ngs performance had been lower than ex–
pected , and impairments of €38 million were recognize d agai nst property, plant, and equip–
men t.
10.6
Some times an entity may reo rga nize its business so that ch anges will be made to the com–
position of the cash-generating units. If thi s is the case, goodwill will be rea llocated to new cash–
generating units based on their relative values.
Case Study 8
Facts
An entity has an oil platform in the sea. The entity has to decommission the platform at the end of its
useful life, and a provision was set up at the commencement of production. The carrying value of the
provision is $8 million. The entity has received an offer of $20 million (selling costs $1 million) for the
rights to the oil platform, which reflects the fact that the owners have to decommission it at the end of its
useful life. The value-in-use of the oil platfonn is $26 million ignoring the decommissioning costs. The
current carrying value of the oil platform is $28 million.
Required
Determine whether the value of the oil platform is impaired.