I’m particularly confused with the concept of impairment, as to, to what extent different assets are impaired when impairment occurs. Here’s an example which is driving me crazy:
Carrying value of assets (in $mill) on 31/12/2010 are as follows:
Cash-100, A/R-20, Inventories-10, PPE-200, Patents-20, Goodwill-75 (TOTAL-425)
Their fair values on the same date are as follows:
Cash-100, A/R-15, Inventories-25, PPE-120, Patents-60 (TOTAL-320)
Therefore, there’s an impairment of (425-320)=$105. Agreed.
Now, we need to assign this impairment loss to the carrying values of the assets. As per the rule, Goodwill should be written off first, so Goodwill will be reduced from 75 to 0. Agreed.
Now, we only have $30 of the impairment loss to assign. What assets do we assign them to and to what extent?
My text says PPE and Patent’s carrying value on 1/1/2011 will be $100,000 and $50,000, respectively. How are they getting those figures??? Can someone please help? Tysm.