Mentioned to be capitalized 1m explanation 1m costs

(mentioned to be capitalized 1m, explanation 1m)
 costs of renovating, any costs directly attributable to making it capable of operating
in the manner intended by management. (mentioned to be capitalized 1m,
explanation 1m)
 cost of cooling equipment, any costs directly attributable to making it capable of
operating in the manner intended by management. (mentioned to be capitalized 1m,
explanation 1m)
Exclude:
 costs of repair – these are not directly attributable to bringing the asset to its location
& condition for operation. These costs should be expensed. (mentioned not to be
capitalized 0.5m, explanation 0.5m)
 training costs – these benefits cannot be controlled. (mentioned not to be capitalized
0.5m, explanation 0.5m)
Question 4 (25 Marks)
a.
To: Management of Longreach Ltd
From: Name of student
Date: Date of the examination
Title: Impairment Test
Introduction
i) Purpose of the impairment test
 to ensure assets are not overstated.
 carrying amounts (CA) must not exceed recoverable amounts
 recoverable amount (RA) is higher of FV less costs of disposal & value in use

ACC4254 (Solutions)/ Page 10 of 12
Criteria Allocation of marks
Purpose of the impairment test maximum 1 marks each
Total 3 marks
Note: Partial marks awarded for any incomplete answers.
ii) Effect of goodwill on impairment test
 goodwill should be allocated to each CGU based on internal management monitoring
of goodwill
 if unallocated must be tested at smallest CGU containing the goodwill
 in testing a CGU containing goodwill, if an impairment loss occurs, goodwill is to be
written off first
 once written off, goodwill cannot be written back under a reversal of impairment
process
 CGUs containing goodwill must be tested annually, although some relief is available
 As internally generated goodwill cannot be recognised, any such goodwill will
cushion the impairment of an impairment loss
Criteria Allocation of marks
Effect of goodwill on impairment test Any three, maximum 1 marks each
Total 3 marks
Note: Partial marks awarded for any incomplete answers.
iii) Basic steps
 check for indication of impairment: external and internal sources, and if positive
indicator, undertake test; if not no test required
 determine existence of CGUs [define] & allocate corporate assets and goodwill
 if CGU impaired, allocate loss firstly to goodwill;
 and then to other assets on a pro rata basis; cannot reduce CA of an asset below
highest of FV less costs of disposal, value in use & zero.
Criteria Allocation of marks
Steps maximum 1 marks each
Total 4 marks
Note: Partial marks awarded for any incomplete answers.
Sincerely,
____________
Name
Criteria Allocation of marks
Report format and clarity maximum 2 marks.
Note: Partial marks awarded for any incomplete answers.

ACC4254 (Solutions)/ Page 11 of 12
b. i)
Definition
An equity instrument is defined in paragraph 11 of IAS132 as any contract that evidences
a residual interest in the assets of an entity after deducting all of its liabilities. An equity
instrument is effectively the default category for an instrument that does not meet the
definition of either financial asset or financial liability.