Compose Limited estimated an impairment loss of $2 500 000 against its single cash-generating unit. The company had the following assets: headquarters building $3 000 000; plant $1 600 000; equipment $1 400 000. The net carrying amount of the plant after allocation of the impairment loss is:

Question

Quizplus · Accepted Answer

To allocate the impairment loss, we need to use the relative fair value of the assets. The total fair value of the assets is $6,000,000 (headquarters building $3,000,000 + plant $1,600,000 + equipment $1,400,000). 
The relative fair value of the plant is $1,600,000/$6,000,000 = 0.2667. 
Thus, the allocated impairment loss to the plant is $2,500,000 x 0.2667 = $666,750. 
Therefore, the new carrying amount of the plant is $1,600,000 - $666,750 = $933,250. 
The closest option to this answer is option C, which is $817. However, this option does not take into account the carrying amount of the equipment, so it is not the correct answer.

Compose Limited Estimated an Impairment Loss of $2 500 000