Constructor Limited estimated an impairment loss of $500 against its single cash- generating unit. The company had the following assets: Headquarters Building $1000; Construction Plant $600; Equipment $400. The net carrying amount of the Equipment after allocation of the impairment loss is:

Question

Quizplus · Accepted Answer

The impairment loss of $500 needs to be allocated among the assets of the cash-generating unit. This is done by reducing the carrying amounts of the assets in the unit on a pro-rata basis.

The total carrying amount of all the assets is $2000 ($1000 + $600 + $400). The impairment loss of $500 represents 25% of this total ($500/$2000). So, each asset needs to be reduced by 25% of its carrying amount.

For the Equipment, this means a reduction of $100 (25% x $400). Therefore, the net carrying amount of Equipment after allocation of the impairment loss is $400 - $100 = $300.

Constructor Limited Estimated an Impairment Loss of $500 Against Its