Topic11 Solutions - AF3110 Intermediate Accounting 1...

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1 AF3110 Intermediate Accounting 1 2009/10 Semester 2 Topic 11 Suggested Solutions Question 1 (Chapter17 Q4) The impairment loss on each of the following separately identifiable assets is: $ Asset A Carrying amount 1,800 Recoverable amount (FV) 1,400 Impairment loss 400 Asset B Carrying amount 2,500 Recoverable amount (VIU) 1,900 Impairment loss 600 Asset C Carrying amount 1,600 Recoverable amount (FV) 500 Impairment loss 1,100 Asset D Carrying amount 1,900 Recoverable amount (FV) 2,000 Impairment loss nil Question 2 (Chapter17 Q8) The fair value is the amount obtainable from the role of an asset in an arm's length transactions between knowledgeable, willing parties, less the cost of disposal. In this example, an estimate of the amount obtainable is: (a) Equivalent recent sales of factory buildings is: $6m x (1,500sqm/2,000sqm) = $4.5m, and $3.36m x (1,500sqm/1,200sqm) = $4.2m. The average equivalent recent sale is $4.35m. (b) The fixtures and fittings are only worth their net scrap value of
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2 $100,000. (c) The sales transactions costs are 5% of sale price $4.35m. This is estimated to be $217,500. (d) Therefore, fair value less costs to sell is estimated to be: $4.35m + $0.1m - $0.2175m = $4.2325m. (e) As a benchmark check, the average gross selling price of factories throughout the metropolitan area was: $2,750/sqm x 1,500sqm = $4.125m. (f) Therefore, an estimated fair value less costs to sell for the factory of $4.2325m is recommended. Question 3 (Chapter17 Q9) Legitimate types of cash flows to include in the forecasted net cash flows of an asset are: (a) Correct. (b) Incorrect. (c) Incorrect (no cash flow involved). (d) Correct. (e) Incorrect (financing cash outflow). (f) Correct. (g) Correct. (h) Correct (unless the discount rate excludes the effects of inflation). Question 4 (Chapter17 Q10) Amount of impairment loss to be recognised is calculated as follows: End of 20X3 Allocation of purchase price Fair value of identifiable assets Goodwill $m $m $m Operations in Wuhan 80.0 50.0 30.0 Operations in Chengdu 56.0 40.0 16.0 Total 136.0 90.0 46.0
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Topic11 Solutions - AF3110 Intermediate Accounting 1...

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