Mata Mata Ltd has a business operation that represents a
separate cash-generating unit (CGU). At 30 June 2018, the carrying
amounts of the assets of the CGU, valued pursuant to the cost
model, are as follows:
Plant and equipment
600000
Less: accumulated depreciation
(150000)
Goodwill
20000
Land
150000
Total non-current assets 620
620000
Cash
21000
Inventories
12000
Trade receivables
10000
Total current assets
43000
Total assets
663000
Liabilities
(28000
Net assets
635000
The directors of Mata Mata Ltd estimate that, as at 30 June
2018, the fair value less costs to sell the CGU amounts to
$530,000, while its value in use is $575,000. The receivables are
regarded as collectible and inventory is recorded at the lower of
cost and net realisable value. On the same date, the land has a
fair value less costs to sell of $130,000.
During the year ended 30 June 2019, due to some changes in
their marketing strategies, the directors of Mata Mata Ltd assessed
that the recoverable amount of the CGU to be $15,000 greater than
its carrying amount. As a result, Mata Mata Ltd recognised a
reversal of the impairment loss.
Prior to the impairment exercise on 30 June 2018, the plant
and equipment had a cost of $600,000 and depreciated using
straight-line basis over a useful life of 4 years with no residual
value. Subsequent to the impairment exercise, the asset is to be
depreciated over the remaining useful life of 3 years with no
residual value.
Required:
A. For the year ended 30June 2018, determine how Mata Mata Ltd
should account for the results of the impairment test and prepare
all necessary journal entries. Explain your answers where
necessary. B. For the year ended 30June 2019, determine how Mata
Mata Ltd should account for the reversal of the impairment loss and
prepare all necessary journal entries. Explain your answers where
necessary.
Important tips:
• Make sure you show all workings to support your answers. •
Ensure you have substantiated all your figures with explanation,
where relevant. • In preparing your journal entries, narrations are
not required
