Exercise 7.14 – Impairment, two CGUs
Last Ltd has two divisions, Time and Leisure. Each of these is regarded as a separate CGU. At 31 December 2016, the carrying amounts of the assets of the two divisions were:
| Time | Leisure | |
| Plant | $1 500 | $1 200 |
| Accumulated depreciation | (650) | (375) |
| Patent | 240 | |
| Inventories | 54 | 75 |
| Receivables | 75 | 82 |
| Goodwill | 25 | 20 |
The receivables were regarded as collectable, and the inventories’ fair value less costs of disposal was equal to its carrying amount. The patent had a fair value less costs of disposal of $220. The plant at Time was depreciated at $300 p.a., and that at Leisure was depreciated at $250 p.a.
Last Ltd undertook impairment testing at 31 December 2016, and determined the recoverable amounts of the two divisions to be:
Time $1 044
Leisure 990
As a result, management increased the depreciation of the Time plant from $300 to $350 p.a. for the year 2017.
By 31 December 2017, the performance in both divisions had improved, and the carrying amounts of the assets of both divisions and their recoverable amounts were as follows:
| Time Leisure
Carrying amount $1 322 $1 433 Recoverable amount 1 502 1 520 |
Required:
Determine how Last Ltd should account for the results of the impairment tests at both 31 December 2016 and 31 December 2017.
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