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 v

Answer 1

No journal entry is recorded under ASPE for an increase in fair value. Under IFRS, an impairment of 54 million would be recognized with the possibility of reversing the impairment in the following year, if it relates to assets other than goodwill.

Step-by-step explanation:

The question pertains to accounting entries for impairment and fair value adjustments under Accounting Standards for Private Enterprises (ASPE) and International Financial Reporting Standards (IFRS). Under ASPE, if the fair value of the assets exceeds their book value, an increase is not recognized. Therefore, no journal entry is recorded for the increase in fair value of Dhillon Division's net assets.

Under IFRS, to determine if there is an impairment, the carrying amount of the assets is compared to the higher of the fair value less costs to sell and the value in use. Since the future value in use (346 million) is less than the carrying amount (400 million), an impairment loss of 54 million (400 million - 346 million) would be recognized. The journal entry on December 31, 2017, for the impairment would be:

Dr. Impairment Loss 54 millionCr. Accumulated Impairment Loss (or specific asset account) 54 million

On December 31, 2018, when the fair value recovers to 400 million under IFRS, it is not permissible to reverse the impairment loss related to goodwill. However, if the impairment loss were related to assets other than goodwill, then the reversal would be recognized up to the original impairment loss recorded. The reversal entry, if allowed, would be:

Dr. Accumulated Impairment Loss (or specific asset account) Amount of reversal
Cr. Gain on Reversal of Impairment Loss Amount of reversal