Document 1Table
Fixed asset register
Fixed asset register at 31 December 20X3, Bora line: carrying amount 2,500,000; remaining useful life 5 years (20X4 to 20X8).
Cases
Practical case
Practical caseIAS 36L2 · Intermediate
Value in use of a packaging line: projections, exclusions and rate
6 documents7 tasks≈ 50 min
- Standards
- IAS 36 — Impairment of Assets
Assistance levelHelp on demand · assistance on request
- Method: on request(on request)
- Checklist: on request(on request)
- Hints: withdrawn
- Step-by-step work: shown
Case brief
Situation
Verrerie des Alpilles (a fictitious company) produces and packages glass bottles. Its Bora packaging line, which sells its output to external customers, is the unit tested. The lasting rise in energy costs is an indication of impairment at 31 December 20X3; the carrying amount of the line is 2,500,000 and its remaining useful life 5 years.
Your assignment
Management control sends you the approved budget and market data. Calculate the value in use of the line using only the relevant cash flows, determine its recoverable amount and any impairment loss, and record it. Round each present value to the cent before adding them up. Some information must not be used.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Intermediate level: help remains available, on demand.
Method
- 1Read the brief and the assignment.
- 2Open each document and spot the relevant data.
- 3Carry out the work in the suggested order.
- 4Submit, then read the conclusion and the model answer.
File checklist
- Open each piece (0 / 6 consulted) · to do
- Sort the information in the pieces · to do
- Carry out the work (0 / 9) · to do
- Submit the file, then assess yourself · to do
Documents
File documents
6 documents: open each one to read it.
Data
Key data from the documents
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Date of the test | December 31 20X3 | |
| Carrying amount of the line | €2,500,000.00 | |
| Remaining useful life | 5 years | |
| 20X4 operating cash flow | €600,000.00 | |
| 20X5 operating cash flow | €620,000.00 | |
| 20X6 operating cash flow | €600,000.00 | |
| 20X7 operating cash flow | €560,000.00 | |
| 20X8 operating cash flow | €500,000.00 | |
| Reorganisation savings per year (20X5 to 20X8) | €50,000.00 | |
| Annual loan interest | €40,000.00 | |
| Annual income tax | €120,000.00 | |
| 20X4 budget net cash flow | €440,000.00 | |
| 20X5 budget net cash flow | €510,000.00 | |
| 20X6 budget net cash flow | €490,000.00 | |
| 20X7 budget net cash flow | €450,000.00 | |
| 20X8 budget net cash flow | €390,000.00 | |
| Resale price at the end of life | €95,000.00 | |
| Dismantling and removal costs at the end of life | €15,000.00 | |
| Post-tax weighted average cost of capital | 7.5% | |
| Pre-tax rate | 10% | |
| Incremental borrowing rate | 4% | |
| Fair value of the line | €2,050,000.00 | |
| Costs of disposal | €50,000.00 | |
| Enhancement investment | €200,000.00 | |
| Expected additional annual cash flows | €70,000.00 |
Sorting the information
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
To sort6
Fixed asset register
Approved budget 20X4 to 20X8
Management memo
Finance department memo
Expert's report
Enhancement proposal
Relevant to the treatment0
No effect0
Questions
Work programme
7 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Which budget cash flows do you use for value in use? Justify each adjustment.
Task 2Calculation
Calculate the net cash flows used, their present values and the value in use of the line.
1 Part 1 · Calculation
Calculate the net cash flows used, their present values and the value in use of the line.
- €
- €
- €
- €
- €
- €
- €
- €
- €
- €
- €
- €
Checks
- 0 / 12 steps entered
- Amounts readable
Result: Value in use
Task 3Professional judgement
Which discount rate do you use? Why?
Task 4Calculation
Determine fair value less costs of disposal, the recoverable amount and the impairment loss.
1 Part 1 · Calculation
Determine fair value less costs of disposal, the recoverable amount and the impairment loss.
- €
- €
- €
Checks
- 0 / 3 steps entered
- Amounts readable
Result: Impairment loss
Task 5Journal entries
Which entry do you record at 31 December 20X3?
1 Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
AccountDescriptionDebitCreditLine 1
DebitCreditLine 2
DebitCredit
TotalsDebit0Credit0Task 6Effects on the financial statements
What is the impact on the financial statements?
1 Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
ItemIncreaseDecreaseNo effectFinancial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Notes
2 Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
- €
- €
- €
Checks
- 0 / 3 steps entered
- Amounts readable
Result: Amount of the effect — Equity
Task 7Conclusion
Write the conclusion.
Workspace
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Conclusion
Submission and solution
Complete every item of the file to submit it (0 / 9).
Document this file
These working papers use the data and results of this case.
Normative references
- IAS 36 §30
- IAS 36 §31
- IAS 36 §33
- IAS 36 §39
- IAS 36 §41
- IAS 36 §44
- IAS 36 §45
- IAS 36 §46
- IAS 36 §48
- IAS 36 §50
- IAS 36 §51
- IAS 36 §52
- IAS 36 §55
- IAS 36 §56
- IAS 36 §A17
- IAS 36 §A19
- IAS 36 §A20