Question 1

SECTION B

CASE SCENARIO: Zephyr Renewables Co (Zephyr) operates wind farms. On 1 January 20X5, Zephyr entered into a 20-year lease for land to build a new wind farm. Annual lease payments are $500,000, payable in arrears on 31 December. Zephyr's incremental borrowing rate is 5% (the PV of an ordinary annuity of $1 for 20 years at 5% is 12.4622). Zephyr incurred initial direct costs of $100,000. On the same date, Zephyr received a $2,000,000 government grant to assist with turbine construction. The turbines have a 10-year useful life. At 31 December 20X5, grid connection issues indicated potential impairment of a separate cash-generating unit (CGU). The CGU's carrying amount is $15,000,000 (including $500,000 goodwill). The CGU's value in use is estimated at $12,000,000 and its fair value less costs of disposal is $13,000,000.

QUESTION: What is the impairment loss to be recognized for the CGU at 31 December 20X5?

Accepted Answer

Determine the recoverable amount (higher of Value in Use and Fair Value less costs of disposal). Subtract this from the carrying amount.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the lower of the two values for the recoverable amount, resulting in a $3m impairment loss.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 3

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