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Facts
CASE STUDY 5
A manufacturing entity owns several vehicles. The vehicles are several years old and could be sold only for scrap value. They do not generate cash
independently from the entity.
Required
How will the recoverable value of the vehicles be determined?
Solution
The entity cannot estimate the recoverable amount of the vehicles because their value-in-use cannot be determined separately, and it will be different from
the scrap value. Therefore, the entity would incorporate the vehicles into the cash-generating unit to which they belong and estimate the recoverable
amount of that cash-generating unit.
Cash-generating units should be identified on a consistent basis, period to period, for the same asset or types of asset unless the entity can justify a change.
Facts
CASE STUDY 6
A railway entity has a contract with the government that requires service on each of ten different routes. The trains operating on each route and the income
from each route can be identified easily. Two of the routes make substantially more profit than the others. The entity also operates a taxi service, a bus
company, and a travel agency.
Required
What is the lowest level of cash-generating units that can be used by the entity?
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 ten
rail routes, the lowest level of cash flows that are independent of cash flows from other groups of assets is the cash flows generated by the ten routes
together.
Goodwill that has been acquired in a business combination should be allocated to cash-generating units. Normally internal management records will be used for the
allocation of goodwill. The reported segments of the entity will be the minimum size of cash-generating units to which goodwill will be allocated.
Facts
CASE STUDY 7
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