Question: Magic plc has a retail business which is treated as a separate cash ge
ID: 2333490 • Letter: Q
Question
Question:
Magic plc has a retail business which is treated as a separate cash generating unit and which has suffered badly during the recession.
The carrying amounts of the assets comprising the retail business are:
MUR000
Building 900
Plant and equipment 300
Inventory 70
Other current assets 130
Goodwill 40
On 31 December 2017, an impairment review has suggested that the recoverable amount of the cash generating unit is estimated at MUR 1.3m.
What will be the carrying amount of the inventory after the impairment loss in (iii) has been accounted for? (3 marks)
Confusion on answer:
As per my book, no asset shall be revalued below their recoverable amount, therefore since current assets (Inventory and other current assets) are themselves shown at the lower of cost and net realisable value, no impairment will be allocated to the current assets (inventory and other current assets).
Thus, carrying value of inventory remains at Rs 70,000.
However, that same question was sent to you some days ago where you impaired inventory and and other current assets as well.
Could you please clarify as per latest IAS updates which one is the correct one.
Explanation / Answer
Ans: Impairment of assets is dealt in by IAS 36 which specifically excludes inventory since inventory valuation is dealt with IAS 2, which already measures inventory and reporting is done with lower of cost or net realizable value, so there is no question of impairment applies to inventory. Your book answer is correct, IAS 36 only applies to following Land, Building, Machinery and equipment, Investment property carried at cost, intangible assets, goodwill, investments in subsidiaries, associates, and joint ventures carried at cost, assets carried at revalued amounts under IAS 16 and IAS 38
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