Question 1

**Section A**

MetroWater, a public utility, operates a water treatment plant with a carrying amount of $5.2 million. Due to new environmental regulations, its capacity is restricted. The plant could be sold to a neighboring municipality for $4.5 million, with legal and transfer costs of $200,000. Alternatively, MetroWater can continue using it, generating discounted future cash flows of $4.6 million. What is the impairment loss to be recognized under IAS 36?

Accepted Answer

Determine the Recoverable Amount (higher of Fair Value Less Costs of Disposal and Value in Use). Then compare it to the Carrying Amount.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Selecting the lower of the two values for the recoverable amount, or forgetting to deduct the disposal costs from the fair value.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 2

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