Acct 2159 - Conceptual Framework

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Question 7

Depreciation of the airframe = Cost-residual valueuseful life=$2,000,00010=$200,000

Depreciation of the engine =Cost-residual valueUseful life=$1,000,0005=$200,000

The depreciation of the helicopter in June 2014 = (Depreciation of the airframe + Depreciation of the engine) x 6/12 = $200,000

The depreciation of the helicopter in June 2015 = (Depreciation of the airframe + Depreciation of the engine) = $400,000

Question 8

Critical attributes of an intangible asset are: identifiability, control, future economic benefits (AASB 2010).

The customer list can be considered a specific intangible asset since

- It is sold to Big Safari separated.

- Big Safari has the control over the customer list since Big Safari purchased it.

- The database of the customer list is probable in identifying and further attracting potential customer. Therefore, it can bring future economic benefits to Big Safari.

As indicated by AASB 136 and AASB 138, goodwill gained in a business will be test for impairment and might not be amortized

Question 9

According to AASB 136, an impairment loss is recognised whenever recoverable amount is below carrying amount (AASB 2010). The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use (AASB 2010).

At the end of June 2015, the fair value of the helicopter is estimated as $2,000,000 while it value in use is estimated as $2,100,000. Since the value in use of the helicopter is higher than its fair value, the value in use of the helicopter is its recoverable amount.

The carrying amount of the helicopter = Value of the helicopter – Accumulated depreciation of the helicopter = $3,000,000 -$200,000 - $400,000 =$2,400,000

The impairment loss of the company = Carrying amount – recoverable amount = $2,400,000 - $2,100,000 =$300,000

Since the helicopter contained 2 assets: the engine and the airframe, it is a cash generating unit. The value of the engine = ⅓ ($1,000,000/$3,000,000) of the value the helicopter while the airframes value = ⅔ of the value of the helicopter. So, the impairment of each asset will follow the ratio between its value and the helicopter’s value.

Impairment of engine = $300,000 x ⅓ =$100,000

Impairment of airframe = $300,000 x ⅔ =$200,000

Question 10

According to the AASB 138, internally generated goodwill should not be recorded as an asset as it cannot be measured reliably (AASB 2010). Therefore, the goodwill $1,000,000 cannot be recognised as an asset even though there are some experts evaluating it but since the parents company paid the experts, the experts can be not reliably measure the company at that time. Instead, the company will record the goodwill as an expense.

Reference:

Australian Accounting Standards Board 2010, AASB 116 Property, Plant and Equipment, AASB, Canberra, viewed 23 March 2017 .

International Accounting Standards Board 2010, IAS 16 Property, Plant and Equipment, IASB, London, viewed 23 March 2017 .

Australian Accounting Standards Board 2006, AASB 136 Impairment of Asset, AASB, Canberra, viewed 23 March 2017, .

Australian Accounting Standards Board 2010, AASB 138 Intangible asset, AASB, Canberra, viewed 23 March 2017.