Impairment linkage (IAS 36)

Context

Conserveries du Littoral (a fictitious company) has a 31 December reporting date and applies the cost model. Its packaging line No. 1, acquired on 1 January 20X0 for 1,200,000 and depreciated on a straight-line basis over 10 years with no residual value, is flooded on 30 September 20X2. It remains idle until it is sold in 20X3. The file handed to you contains documents of varying nature and reliability; management expects a professional memo on the treatment for 20X2 and 20X3.

Assignment

'Link with IAS 36' workpaper: impairment indicator, recoverable amount, loss recognised and compensation.

Purpose of the workpaper

This workpaper documents only the link with IAS 36: indications of impairment, need for a test, receipt of the recoverable amount determined in the IAS 36 file, recognition of the loss and new depreciation basis. The test itself is not performed here. Compensation from a third party is documented separately from the loss.

Questions of the file covered by this workpaper

• Should the idle line still be depreciated in 20X2 and 20X3? What assumption do you make about IFRS 5?
• Calculate the carrying amount before the test and the impairment loss at 31 December 20X2.
• When and at what amount is the insurance compensation recognised? Can it reduce the cost of the replacement line?
• What journal entries do you record at 31 December 20X2 in respect of the flood?
• Calculate the revised annual charge after the impairment and the 20X3 charge up to derecognition.

• ExtractFixed asset record of line No. 1Open
• MemoExpert appraisal at 31 December 20X2Open
• ContractCorrespondence with the insurerOpen
• MinutesBoard minutes and sale contractOpen
• InvoicePurchase order for a replacement lineOpen