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Qns on testing for impairment in afternoon 2011 mock exam
This is a question from the cfa afternoon mock exam for 2011. Below is the qns:
A Canadian printing company which prepares its financial statements according to IFRS has experienced a decline in the demand for its products. The following information relates to the company’s printing equipment as of 31 December 2010.
Carrying value of equipment (net book value): 500,000
Undiscounted expected future cash flows: 550,000
Present value of expected future cash flows: 450,000
Fair Value: 480,000
Costs to sell: 50,000
Value in use: 440,000
The impairment loss (in C$) is closest to:
A. 0.
B. 60,000.
C. 70,000.
Answer = B
The answer from the mock exam is B. Based on this question, there think there are some answers conflicts. Any experts who read this question, please kindly correct me if I'm wrong.
The net book value is $500,000.
The un-discounted expected future cash flows: $550,000
Since the un-discounted cash flows: $550,000 is more than net book value: $500,000, the testing of the asset is not impaired. (Net book value > un-discounted cash flows)
I just want to know if my method is correct. I have attempted a lot of questions and there are some questions test impairment by using the un-discounted cash flows. If it is impaired, the asset carrying value (-) present value of the cash flows.
Any different views? Thanks
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This is the answer explanation from the mock exam:
Under IFRS, an asset is considered to be impaired when its carrying amount exceeds its recoverable amount (the higher of fair value less cost to sell or value in use).
Fair value less costs to sell: 480,000 – 50,000 = 430,000
Value in use = 440,000
Recoverable amount (higher value) = 440,000
Impairment loss under IFRS = Carrying value – recoverable amount = 500,000 – 440,000 = 60,000 |
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发表于 2011-7-13 16:13
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