Question

The following is net asset information for the Dhillon Division of Klaus, Inc.:

NET ASSETS
as of December 31, 2017
(in millions)
Book Value
Fair Value
Excluding Goodwill
Cash
250
Accounts receivable
216
216
Property, plant, and equipment (net)
2,618
2,760
Goodwill
206
Less: Notes payable
(2,700)
(2,700)
Net assets
400 million.
2. Future value in use is approximately
346 million, and selling costs would total
400 million. Under ASPE, prepare the journal entry, if any, to record the increase in fair value.
(c) Under IFRS, determine if there is any impairment and prepare any necessary entry on December 31, 2017.
(d) On December 31, 2018, it is estimated that the cash-generating unit's fair value has increased to $400 million. Under IFRS, prepare the journal entry, if any, to record the increase in fair

Answer 1

Under ASPE, typically no journal entry is made for the increase in fair value of an asset unless it's part of a specific transaction. Under IFRS, there is an impairment reflected by a journal entry debiting Impairment Loss and crediting Net Assets for the loss amount. In subsequent periods, impairment may be reversed under certain conditions, but goodwill impairment cannot be reversed.

Step-by-step explanation:

Journal Entries under ASPE and IFRS

Applying the Accounting Standards for Private Enterprises (ASPE), no entry is recorded for the increase in fair value typically, unless the asset is being revalued as part of a transaction or an applicable revaluation policy. Under the International Financial Reporting Standards (IFRS), if an impairment loss had been recognized previously, the increased fair value could lead to a reversal. However, based on the details provided:

• There is an impairment as the future value in use (346 million) is less than the carrying amount (400 million).
• The impairment loss is the difference between the carrying amount and the value in use (400 million - 346 million = 54 million).
• The journal entry to record the impairment under IFRS would be: Debit Impairment Loss (54 million), Credit Net Assets (54 million).

For December 31, 2018, under IFRS, the reversal of impairment is limited to the amount that would restore the asset to its original carrying amount had no impairment been recognized. Moreover, goodwill cannot be reversed for impairment under IFRS. In this case, without more information about previous impairments, a specific entry cannot be determined.